QUESTION 1 Jasa Construction purchases inventory 80,000 units annually. The cost per unit is RM4.00 and delivery takes two (2) weeks from the moment the order is placed. The cost of ordering is RM50.00 per order. Inventory storage and insurance cost every quarter account for 40% of the purchase price. They generally keep a safety supply of 9,000 units based on sales records. The order should be placed in 100 units, with 52 weeks in a year assumed. Compute the following: a) Optimal Economics Order Quantity (EOQ). b) Company's total inventory costs for the year 2022. c) Reorder point. (3 marks) (5 marks) (2 marks) QUESTION 2 AG Tech needs RM900,000 for the next 6 months to finance its growing business. The company is considering the following sources of financing: Alterative I A discounted loan with 5% interest rate. A minimum balance of RM80,000 must be maintained in its deposit account. Alterative Il Issuing commercial paper with 180 days to maturity and a face value of RM150,000 each at 9% interest per annum. The issuing cost equals to RM500 per paper. Alternative Ill A credit arrangement with Nova Bank which agrees to lend a maximum amount of RM1 million at 7% interest with 1.5% commitment fee on the unused fund. a) Calculate the effective interest rate for each alternative. b) Which alternative is the best for AG tech? Justify your answer. (9 marks) (1 mark) QUESTION 3 Mary Jane Manufacturing is interested in measuring its overall cost of capital. The firm is in the 40% tax bracket. Current investigation has gathered the following data. The first data indicate that the firm can raise an unlimited amount of debt by selling RM 1,000 par value. 10% coupon interest rate, 22 year bond and it has been issued 12 years ago. To sell the issue, an average discount of RM 30 per bond must be given. The firm must also pay floatation cost of RM 20 per bond. In addition, the firm can also sell 11% (annual dividend) preferred stock. The selling price of the preferred stock is expected to be RM 96 per share. On the other hand, the firm's common stock is currently selling for RM 80 per share. The firm expects to pay cash dividends of RM 6 per share next year. The firm's dividends have been growing at an annual rate of 6%, and this rate is expected to continue in the future. The stock will have to be under-priced by RM 4 per share, and floatation costs are expected to be RM 4 per share. a) Calculate the cost of financing for each alternative. (9 marks) b) Which alternative would you recommend to Mary Jane Manufacturing? Please justify your answer (1 mark) QUESTION 4 BDB Enterprise has two mutually exclusive projects. Each project will incur an initial cost of RM 2 million. The discount rate for both projects is 10%. Below are the projected cash flow for the projects. Year Project MZ (RM) 1 500,000 800,000 2 3 4 5 1,000,000 1,500,000 2,000,000 Project CW (RM) 500,000 500,000 500,000 500,000 500,000 a) Calculate the Payback Period for each project. a) Calculate the Net Present Value for each project. b) Calculate the Internal Rate of Retum for Project CW. c) Calculate the Profitability Index for each project. d) Which project should be selected? END OF QUESTION PAPER (4 marks) (6 marks) (5 marks) (4 marks) (1 mark)
