1. Toms Gift Shop is experiencing some inventory control problems. Tom currently orders 5,000 units 5 times each year to handle annual demand of 25,000 units. Each order costs $15 and each unit costs $1.00 to carry. Tom maintains a safety stock of 200 units. (a) What is Toms Gifts' current total annual inventory cost? (4 points)

(b) Calculate the economic ordering quantity (EOQ).(4 points)

(c) What is average inventory under EOQ if Tom maintains a safety stock of 200 units. (4 points)

(d) Calculate total annual inventory cost under EOQ. (4 points)

2.Wilson Co. is a highly successful supplier of leather to manufacturers of leather goods. Wilson is considering expanding into the U.S. luxury auto seat market. It is estimated that although selling leather to U.S. auto manufacturers will bring additional annual sales of $1,000,000, a high 10% of those accounts will be uncollectible. The cost of conditioning and selling the leather is 60% of sales.Wilson's tax rate is 30%. a). Calculate Tanner's incremental net income on the new sales.(4)

b). Assume Wilson has a receivables turnover of 4. Calculate Wilson's incremental accounts receivable investment and after-tax return on that investment.(4)

c). Wilson's minimum required ROI is 15%. Should Wilson expand into the auto market? Why or why not? (1)

3. Ford Inc. is trying to develop an asset-financing plan. The firm has $400,000 in temporary current assets and $300,000 in permanent current assets. Ford also has $500,000 in fixed assets. Assume a tax rate of 40 percent.

a. Construct two alternative financing plans for Ford. One of the plans should be conservative, with 75 percent of assets financed by long-term sources, and the other should be aggressive, with only 56.25 percent of assets financed by long-term sources. The current interest rate is 15 percent on long-term funds and 10 percent on short-term financing. Compute the annual interest payments under each plan.(10 )

b. Given that Fords earnings before interest and taxes are $200,000, calculate earnings after taxes for each of your alternatives.(5)