Question 3 a. DIENG Limited demands 70,000 units of raw materials a year at a steady rate. The cost of an order and holding per year is ¢20 and ¢3.0 respectively. Estimate the order size that helps DIENG Limited to minimize stock costs. How many orders are made each year? b. Suppose that DIENG Limited sells T-bills on the secondary market each time it needs cash. The cost of discounting the T-bill is GH¢30. The interest rate on T- bills is currently 13% p.a. If the firm's demand for cash is GH¢ 5.0 a month, what is the optimal amount of T- bills DIENG Limited should sell each time it needs to do so in order to optimize transaction costs and interest income.
Question 3 a. DIENG Limited demands 70,000 units of raw materials a year at a steady rate. The cost of an order and holding per year is ¢20 and ¢3.0 respectively. Estimate the order size that helps DIENG Limited to minimize stock costs. How many orders are made each year? b. Suppose that DIENG Limited sells T-bills on the secondary market each time it needs cash. The cost of discounting the T-bill is GH¢30. The interest rate on T- bills is currently 13% p.a. If the firm's demand for cash is GH¢ 5.0 a month, what is the optimal amount of T- bills DIENG Limited should sell each time it needs to do so in order to optimize transaction costs and interest income.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Question 3
a. DIENG Limited demands 70,000 units of raw materials a
year at a steady rate. The cost of an order and holding per
year is ¢20 and ¢3.0 respectively. Estimate the order size
that helps DIENG Limited to minimize stock costs. How
many orders are made each year?
b. Suppose that DIENG Limited sells T-bills on the
secondary market each time it needs cash. The cost of
discounting the T-bill is GH¢30. The interest rate on T-
bills is currently 13% p.a. If the firm's demand for cash
is GH¢ 5.0 a month, what is the optimal amount of T-
bills DIENG Limited should sell each time it needs to do
so in order to optimize transaction costs and interest
income.
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