a) The annual demand for Praise Limited’s inventory is 10,500 units. The item costs GH¢400 a unit to purchase. The holding cost for one unit for one year is 12% of the unit cost, and ordering costs are GH¢450 per order. The supplier offers a 2% discount for orders of 700 units or more and a discount of 3% for orders of 950 units or more.

Required:
Determine the cost-minimizing order size of the company. (8 marks)

b) Five years ago, Gasoto Ltd. issued 12 percent irredeemable debentures at their par value of GH¢100. The current market price of these debentures is GH¢94. The company pays corporation tax at a rate of 30 percent.

Required:
Calculate the company’s current cost of debenture. (3 marks)

c) Zeb Limited offers 2 percent discount to its customers who pay within ten (10) days. The company normally collects its debt within thirty (30) days. Assume 365 days in a year.

Required:
Determine the cost of the discount to the company. (3 marks)

d) Brothers Limited enters into a forward rate agreement (FRA) with Bank of Frica in which Brothers Limited will receive a fixed rate of 8% for nine (9) months on a loan of GH¢1 million. Bank of Frica agrees to receive a nine (9) months LIBOR rate to be determined in nine (9) months’ time on the loan principal.

Required:
Determine the results of the FRA and the effective loan rate if the spot rate for the LIBOR in nine (9) months is:
i) 5%
ii) 10% (6 marks)