Tutu Traders Ltd wholesales beverages and annual sales amount to 900 000 units. Orders are placed in multiples of 300 units. The purchasing price is R3 per unit. The carrying cost of inventory equals 25% of the purchase price of goods. The ordering cost is R60 per order. Three days are required for delivery. The desired safety stock for the firm is 30 000 units. This amount is on hand. Required: 4.1.1 Calculate the EOQ for Tutu Traders Ltd. (3) 4.1.2 Determine the number of orders to be placed each year. (2) 4.1.3 Determine the reorder point for inventory. (2) 4.2 Bebe Construction is considering factoring its accounts receivable. Credit sales amount to approximately R26 million per year. The companys collection period is 60 days. Lele Limited is a factoring company. They are prepared to offer Bebe Construction the following terms: 50% on each credit invoice will be paid immediately and interest will be charged at 2% above the current prime rate of 9%. Service fees will be charged at 2% of total sales. The company is offered a discount of 4% for cash settlement by its suppliers, subject to a discount amount of 40% of its total sales. Bebe Construction will save R140 000 in expenses, if it were to factor.

Required:

4.2.1 Calculate the effective cost of factoring. (10)

4.2.2 Is this form of factoring effective? Justify your answer. (3)

4.3 Your goal is to travel exactly 10 years from now. You believe that you will need R40 000 at that point. How much must you invest now to have at an interest rate of 7% compounded semi-annually?