The following information pertains to an inventory item:

Cost		$12.00
Estimated selling price		13.60
Estimated disposal cost		.20
Normal gross margin		2.20
Replacement cost		10.90

Under the lower-of-cost-or-market rule, this inventory item should be valued at

1. $10.70

2. $10.90

3. $11.20

4. $12.00