. a) High Riser Ltd uses multigrain wheat flour in the production of its bread. The following information has been provided in respect to the flour used in production: Amount required 250,000 kg per year Working days 365 Purchase price $10.00 per kg Cost of placing order $14.00 Carrying cost $1.80 per kg per year, plus an imputed interest cost on the funds invested in inventory of 12 per cent per year. i. What quantity of inventory should be ordered? [2 marks] ii. What is the total cost per year of the inventory if you employ the order quantity derived in part (a)? [3 marks]

3. b) Kunura Fleet Ltd operates a fleet of limousines. It is currently considering replacing them with a new model. A decision must be made to replace the old limousines with new now or alternatively at the end of the physical life of the old limousines in 4 years. The required rate of return is 9%. The company plans to evaluate options based on the following information for each vehicle replaced: Item Old Limousines New Limousines Net cash flows $40,000 p.a. $70,000 p.a. Cost - $300,000 Estimated Life 4 years 7 years Disposal Value: at present $20,000 Disposal Value: in 7 years - $40,000 Required rate of return (real) 9% p.a. 9% p.a. Should Luxury Fleet replace the old limousines now or later?