Question 1. Your firm invests in only three different classes of marketable securities: commercial paper, Treasury bills, and federal agency securities. Recently, yields on these money market instruments of three months' maturity were quoted at 6.10, 6.25, and 5.90 percent. Match the available yields with the types of instruments your firm purchases.
Question 2. (Trade credit discounts) Determine the effective annualized cost of forgoing the trade credit discount on the following terms:
a. 1/10, net 20
b. 2/10, net 30
c. 3/10, net 30
d. 3/10, net 60
e. 3/10, net 90
f. 5/10, net 60
Question 3. (EOQ calculations) The local hamburger fast-food restaurant purchases 20,000 boxes of hamburger rolls every month. Order costs are $50 an order, and it costs 25 cents a box for storage.
a. What is the optimal order quantity of hamburger rolls for this restaurant?
b. What questionable assumptions are being made by the EOQ model?
Question 4. (EOQ calculations) A local car manufacturing plant has a $75 per-unit per-year carrying cost on a certain item in inventory. This item is used at a rate of 50,000 per year. Ordering costs are $500 per order.
a. What is the EOQ for this item?
b. What are the annual inventory costs for this firm if it orders in this quantity? (Assume constant demand and instantaneous delivery.)