f9 question from opentutuin examination mock

For the EOQ formula, D = 7500 x12 = 90,000; Co = 100; Ch = 0.1 x £5 = 0.50. If you put these in the formula you get EOQ = 6,000. Since the are ordering 90,000 a year and 6,000 each time, then will order 90,000/6,000 = 15 times a year. With 365 days in a year, that means they will order every 365/15 = 24 days.

thank you sir and sorry for posting question three times..actually i didnt knw how to ask from tutuor...

You are welcome, and no problem :-)

A company has sales of $200M per year. Currently customers take on average 40 days to pay. The company is considering offering a discount of 1% for payment within 15 days and expects that 60% of customers will take advantage of the discount. What is the effective annual cost of offering the discount?

A company has just paid dividend of $0.23 per share. Shareholders are expecting the dividend to remain at $0.23 per share next year, but to increase at an average rate of 3% per annum thereafter. Shareholder required rate of return is 12%, and the rate of cooperation tax is 25%. What will be the current market value per share (to the nearest cent)?

Question 1: the discount is 1/99 = 0.0101 over a period of 25 days (40 - 15) So the effective annual cost = (1.0101)^(365/25) - 1 = 0.1580 (or 15.80%)

Question 2: If the dividend was growing immediately then the answer (using the dividend growth formula) would indeed have been 2.63. However, growth does not start until a year from now, and so 2.63 is the value in 1 years time. So then we have to use the basic rule that the market value is the present value of expected receipts discounted at the required return. The value in 1 years time is 2.63, plus the expected dividend of 0.23 in 1 year gives a total in 1 years time of 2.86. Discount this for 1 year at the required return of 12% and you will get $2.56. (This has been a common ‘trick’ of the examiner in recent exams.)