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Danish Manufacturing is involved in the production of machine parts


Danish Manufacturing is involved in the production of machine parts. The company uses 50,000 pounds of steel annually. The current purchasing cost for steel is RM2.20 per pound. The carrying cost for inventory is 20 percent of the purchase price. The cost of ordering is RM100 per order. The company has decided to maintain a safety stock of 2000 pounds of steel. The delivery time per order is 10 days. The company works 360 days in a year. a) b) c) Calculate the EOQ How many orders will be placed annually? What is the average inventory? What is the reorder point? What is the company's total inventory cost for the year? d) e) a) Bella Industry (Bella) is seeking your financial advice to determine the firm's cost of capital. The following data is given to you: i) 20 years bond with 12% coupon was issued 10 years ago and is currently selling at RM1153. The firm's tax bracket is 40% and flotation cost is 20% of par value. The par value is RM1000. ii) The current price of its preferred stock is RM1.13 issued with a dividend of 10% of par value of RM1. Flotation cost is 10% of its current price. iii) Bella's stock is currently selling at RM5 per share. The expected dividend for next year is RM0.44 and it is expected to grow at a constant rate of 5%. Calculate the after tax cost of: i) Debt (6) ii) Preferred Stock iii) Equity b) Calculate the weighted average cost of capital (WACC) if the ratio is as follows: i) Debt 30% ii) Preferred Stock 20% iii) Equity 50% (4)

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