QUESTION 1 a) The annual demand for Praise Limited's inventory is 10,500 units. The item costs GHC400 a unit to purchase. The holding cost for one unit for one year is 12% of the unit cost and ordering costs are GH450 per order. The supplier offers a 2% discount for orders of 700 units or more and a discount of 3% for orders of 950 units or more. Required: Determine the cost minimising order size of the company. [10 marks] b) Kwame after his National Service and with no hope of securing a job in the formal sector has decided to run a taxi service. The following forecast has been made for the operation of a service between Abisim and Sunyani. i) Revenue totaling GH300 a week for 52 weeks in a year. This is net of fuel and other variable costs. ii) Tyres; four pieces for a year at GH120 per unit. ii) Maintenance and servicing; GH120 per month. iv) Salaries GH3,000 per year v) Insurance GH350 per year The net cash flow will increase at 5% per annum for the next five years due to inflation. The cost of the vehicle is estimated at GH28,000. The project appears quite profitable based on the NPV criteria using the Government policy rate of 26%. However the banks are offering rates far higher than the policy rate. Required: You are to calculate the break-even rate for the project. (10 marks] QUESTION 3 Ayittey Ltd is an organization with two divisions: A and B, each with its own cost and revenue streams. Each of the two divisions is classified as Investment center. The company's cost of capital is 9%. Historically, investment decisions have been made by calculating the return on investment (ROI). A new manager who has recently been appointed in division A has argued that using residual income (RI) to make investment decisions would result in 'better goal congruence' throughout the company. The data below shows the current position of the division as at the end of 31 December, 2019: Details of Projects Project A Project B Capital required GHC 82.8 million GHC 40.6 million Sales generated GH44.6 million GHC 21.8 million JOHN K. AKUMA MANAGERIAL ACCOUNTING BUAC 356 31 Page Net Profit margin 18% 25% The company is seeking to maximize shareholders wealth. Assuming that, Division A acquires a more efficient asset at GH17 million and Division B sold one of its assets with written down value of GH_21 million, and profits are expected to increase and decrease by GH 10 million and GH7 million for division A and B respectively. Required: a) Calculate both the current Return on Investment (ROI) and Residual Income (RI) for each of the divisions. [10 MARKS] b) Calculate and comment on the effect of the decision to invest in the new asset and disposal of some assets will have on the current ROI and RI. [10 MARKS]