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Tutorial 8

The document provides 10 multiple choice and calculation questions related to corporate finance topics like economic order quantity (EOQ), trade credit management, and cash flow planning. The questions cover concepts like optimal inventory levels, reasons for offering trade credit, factors that influence credit periods, and calculating transfer amounts and frequencies to manage cash flows.

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13 views

Tutorial 8

The document provides 10 multiple choice and calculation questions related to corporate finance topics like economic order quantity (EOQ), trade credit management, and cash flow planning. The questions cover concepts like optimal inventory levels, reasons for offering trade credit, factors that influence credit periods, and calculating transfer amounts and frequencies to manage cash flows.

Uploaded by

Pump Aesthetics
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Corporate Finance – BBA2103

Tutorial 8 (Questions)
Corporate Finance – BBA2103
Questions 1-3 Are Multiple-Choice Questions, 4-8 Are Theory Questions And 9 & 10 Are
Calculation Questions
1. If EOQ = 40 units, order costs are $2 per order, and carrying costs are $.20 per unit, what
is the usage in units?
(i) 10 units.
(ii) 16 units.
(iii)40 units.
(iv) 80 units.

2. Which of the following best represents the optimal economic order quantity (EOQ),
where total usage of the inventory item is 100,000 units for the planning period, the cost
per order is $180, and the carrying costs per unit for each period is $1?
(i) 6,000 units.
(ii) 4,243 units.
(iii)556 units.
(iv) 4 units.

3. If EOQ = 1,000 units, order costs are $200 per order, and sales total 5,000 units, what is
the carrying cost per unit?
(i) $2
(ii) $10
(iii)$100
(iv) $1,000

4. Why should companies offer trade credit ?

5. What is the aim of trade credit management ?

6. What are the main factors influencing credit period ?

7. What should credit assessment involve ?

8. Why do company provide cash discounts to their customers in trade credit ?

9. The treasurer of Bizarre plc, a company specializing in unusual gifts for eccentric business
managers has a sizeable sum invested in short-term investments, earning 6% interest. Every
time she sells investments to top up the bank balance, the transaction cost is £25. Monthly
cash payments are around £200,000. How often and by how much, should she transfer
money to the bank account ?

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Corporate Finance – BBA2103

10. EOQ analysis Tiger Corporation purchases 1,200,000 units per year of one component.
The fixed cost per order is $25. The annual carrying cost of the item is 27% of its $2 cost.

a. Determine the EOQ under each of the following conditions:


(i) No changes,
(ii) Order cost of zero, and
(iii)Carrying cost of zero.

b. What do your answers illustrate about the EOQ model? Explain.

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