Introduction to Corporate Finance

Ross et al.: Fundamentals

of Corporate Finance, Sixth

Edition, Alternate Edition

VII. Short−Term Financial

Planning and Management

21. Credit and Inventory
    Management

© The McGraw−Hill^765

Companies, 2002

13. EOQ Derivation Prove that when carrying costs and restocking costs are as
    described in the chapter, the EOQ must occur at the point where the carrying
    costs and restocking costs are equal.


14. Credit Policy Evaluation The Killarney Corporation is considering a change
    in its cash-only policy. The new terms would be net one period. Based on the fol-
    lowing information, determine if Killarney should proceed or not. The required
    return is 3 percent per period.


15. Credit Policy Evaluation Gorillaz Systems currently has an all-cash credit
    policy. It is considering making a change in the credit policy by going to terms
    of net 30 days. Based on the following information, what do you recommend?
    The required return is 2 percent per month.


16. Break-Even Quantity In Problem 14, what is the break-even quantity for the
    new credit policy?


17. Credit Markup In Problem 14, what is the break-even price per unit that
    should be charged under the new credit policy? Assume that the sales figure un-
    der the new policy is 3,300 units and all other values remain the same.


18. Credit Markup In Problem 15, what is the break-even price per unit under the
    new credit policy? Assume all other values remain the same.


19. Safety Stocks and Order Points Saché, Inc., expects to sell 700 of its de-
    signer suits every week. The store is open seven days a week and expects to sell
    the same number of suits every day. The company has an EOQ of 500 suits and
    a safety stock of 100 suits. Once an order is placed, it takes three days for Saché
    to get the suits in. How many orders does the company place per year? Assume
    that it is Monday morning before the store opens, and a shipment of suits has just
    arrived. When will Saché place its next order?

21.1 Banker’s Acceptance Rates What are the highest and lowest historical inter-

est rates for banker’s acceptances? Go to http://www.economagic.com and follow the

“Interest Rates” link. Find the highest and lowest interest rates for one-, two- and

three-month banker’s acceptances over the time reported. When did they occur?

Spreadsheet Templates21–4, 21–7, 21–9, 21–10, 21–11, 21–16, 21–18

Current Policy New Policy

Price per unit $ 315 $ 320

Cost per unit $ 240 $ 245

Unit sales per month 3,000 3,100

Current Policy New Policy

Price per unit $ 70 $ 75

Cost per unit $ 40 $ 40

Unit sales per month 3,200 3,500

738738 PART SEVENPART SEVEN Short-Term Financial Planning and ManagementShort-Term Financial Planning and Management

Intermediate

(Questions 13–15)

Challenge

(Questions 16–19)

What’s On

the Web?

A B C
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e have $ 50 , (^000)? We need to solve
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t a percentage.
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