Question

1) A manufacturing firm has the following estimates for its inventory:

–100,000 oz. of silver (D) is required for production each month

– Ordering Costs are $50.00/order (OC)

–Holding Costs are $1/oz. (HC)

a) Calculate the EQQ based on the information;

b) What’s the total cost at this EQQ units

2) What are some major considerations in extending trade credit?

What’s the five C’s of credit approval?

3) A firm has made a credit sales with the following credit terms:

- $2,000,000 order, 30-day credit terms

- VCR (0.30) = Variable cost ratio/$ of sales

- EXP (0.05/CP) = Expenses for credit administration and collection/$ of sales

- i (0.10/365) = Daily interest rate

- CP (45 days) = Collection period for sale

a) Calculate the variable cost of this sales

b) Calculate the present value of this sales

c) Calculate the NPV of this sales

Answer 1