A business holds an inventory item with an economic order quantity of 800 units. Supply lead times and usage rates for the item are as follows:

MaximumAverageMinimum

Supply lead time20 days12 days6 days

Daily usage25 units20 units10 units

The business wishes to avoid any risk of running out of this inventory item.

What is the size of the buffer inventory (using average figures) and the maximum level of inventory?

Antares Co and Sirius Co have identical business risk and operating characteristics. Antares Co has financial gearing and Sirius Co is entirely financed by equity. Both companies pay out all their profits in dividends but Antares Co earns twice as much profit before interest and tax as Sirius Co. Antares Co has equity with a market value of $34 million and debt with an equilibrium market value of $15 million. Sirius Co has equity with an equilibrium market value of $24 million. The tax rate is 20%.

According to Modigliani and Miller (with taxes), what is the predicted value of the equity of Antares Co?

Arcturus Co has recently purchased goods costing $12,000 from a supplier. The supplier has offered credit terms of 3/15, net 40. If a cash discount is taken, payment will be made on the last possible day. The opportunity cost of funds for Arcturus Co is 30%.

What is the net saving, or net cost, at the normal time of payment of taking a cash discount?