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Working Capital Management

Part a) Jackson Electronics inventories computer chips that cost $30.00 each. Inventory carrying cost is approximately 20% of value. It costs $40 to place, process, and receive an order. The firm uses 3,000 chips a year. What ordering quantity minimizes the sum of ordering and carrying cost?

Part b) Mathey, Inc. uses 4,000 cinder blocks a year. On average, the cinder blocks cost $14,and the annual cost of carrying one in inventory is $1.44. The cost of placing an order is$45. Use the economic order quantity model to determine annual, total inventory cost.

Part c) APPL, Inc. uses 10,000 litres of resin a year. On average, a litre of resin costs $43, and the annual cost of carrying one in inventory is $2.40. The cost of placing an order is $120. Use the economic order quantity model to determine annual, total inventory cost.

Part d) What is the approximate effective interest rate implied by not taking the discount when credit terms are 1/10, net 20?

Part e) Franklin Inc has a $20M revolving credit agreement with its bank at prime plus 3%. Prior to April, it had taken down $10M. On April 15, it took down another $5M. Prime is 9%, and the bankâ??s commitment fee is 0.25% annually. Calculate Franklin's April interest charges.

Solution Summary

The working capital management for Jackson Electronics Inventory are examined.

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