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1. Please could you explain the statement that an increase in shareholder required rate of return will lead to a fallen share price
2. RI Co has in issue 6% redeemable bonds quoted at 120% ex int.
please how did you get the interest yield of 5% and redemption yield of 4%3. PQR C. has a demand of 7500 units per month. Each unit cost $5; ordering cost are $100 per order and the inventory holding cost is 10% of purchase price per year
There is a lead time of 30 days between placing an order and receiving delivery
If they order the economic order quality each time at what level of inventory should a new order be placed.My answer was 6000units
Please could you explain the answer. Thank you.
1. If you look at the first formula on the formula sheet, then if Re increases then Po will fall. The MV is the present value of future receipts – if you discount at a higher rate then you get a lower present value.
The lectures on the valuation of securities will help you.2. The interest yield is 6/120 = 5%. Since the question says that they will be redeemed at less that 120, the reception yield must be lower that 5%. (You cannot be asked to actually calculate the reception yield in F9, but you can be expected to know what it is. and 4.6% is the only choice that ‘works’).
3. The EOQ is indeed 6,000, but the question does not ask for the EOQ. The reorder level is the lead time times the demand per day. With 365 days a year, it is (7500×12) x 30/365
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