Pages: 4 Words: 890

## Question :

Case study 1

Sammy Sausages is a sausage processing business run by Samuel Smith. The sausages are made fresh every day and delivered to the fast food outlets the same day. The prime ingredient is premium quality minced beef. Each day 708 kilograms is used to produce 700 kilograms of sausages.

An administrative assistant who is paid an hourly rate of \$28 does the order processing. She takes 45 minutes to process each order.

The minced meat is bought at a price of \$4,000 per tonne. The cost of refrigerating the meat is \$1 for every 10 kilos.

The meat may be refrigerated for 14 days as Sam wants to maintain a high standard and freshness with his products. He also tries to maintain a safety stock of 2 days.

The order lead-time is 1 day.

The company requires a 10% return on investment (ROI).

Complete the following activities:

1. Determine Sammy Sausages’ Economic Ordering Quantity (EOQ). Show your calculations.
2. Advise Samuel on whether he should implement the calculated EOQ

Case study 2

Rachael Wilson is CFO for a large telecom company in Australia. She has recently discovered an interesting computer available for purchase in Australia from Computer Analytics. It is being used by several companies to automatically perform analysis on data. Rachael has been researching it for the last month and is convinced that the \$3.1million machine would suit her company. It will save \$900,000 a year in analyst salaries. Computer Analytics will install it and test it for \$100,000 and it is expected to last for 8 years. Computer Analytics also requires a refundable deposit of \$300,000 to be paid up front. This will be held by Computer Analytics for the life of the machine so it can provide annual updates. Required rate of return is 14%

1. Calculate Net Present Value (NPV). Show your calculations.
2. Calculate Internal Rate of Return (IRR). Show your calculations
3. Should Rachael go ahead with purchasing the computer if the required rate of return is 15%? Show your calculations.

Case study 3

Three directors of a profitable listed company discussed their preferred dividend policies for their company.

1. Pay no dividends for the next five years.

2. Always pay a dividend of 50% of earnings after taxation.

3. Maintain a low but constant dividend per share (after adjusting for the general price index), and offer regular scrip issues and shareholder concessions.

Each director is convinced that his policy will maximise shareholder wealth.

1. Discuss the advantages and disadvantages of the alternative dividend policies for the company.