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Hi sir,
I’m doing exercises in Opentuition Notes. The question is “A company forecasts a cash requirement of $1,500,000, the use being constant throughout the year. The company has investments in excess of this amount which are earning 9.5% p.a. The company earns interest of 5% on their current account bank balance. The cost of selling investment is 150 per transaction. EOQ is $100,000”. I don’t understand while the “Interest loss on investments is calculated by (100,000+1,500,000)/2 * 9.5%. Why do we have to add 100,000 here? The opportunity cost is for 1,500,000, I think so, because that’s the whole demand. Please explain it to me, thank you.I explain this in my free lectures.
You should not use the lecture notes on their own – they are only notes and it is in the lectures that I work through the examples and explain and expand on the notes.
If you are not watching the lectures for any reason then you must buy a Study Text from one of the ACCA approved publishers and study from there.
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