Economic order quantity $($EOQ$)$ is the optimal order quantity a company should purchase to minimise inventory costs, such as holding costs, shortage costs and order costs. PC World manufactures personal computers $($PCs$)$ and laptops. The company uses a central processing unit $($CPU$)$ as the primary component of each PC$.$ It is estimated that the company requires $20,000$ CPUs per year. In addition, all inventory holding costs for CPUs amount to $1$ per unit per year, and it costs $20$ to process each CPU.

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$1)$ What is the EOQ for the CPU $($Hint: calculation is required$)?$

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$2)$ At what inventory level should the order be placed to ensure that a delivery will arrive before the existing inventory depletes $($Hint: calculation is required$)?$

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$3)$ As a financial analyst, suggest a working capital policy, such as an aggressive, moderate or conventional policy, to ensure PC world maintains a strong working capital cycle in the face of increasing competition from Dixons Computer Plc$.$ Hint: this a conceptual question, calculation is not required. Higher marks will be given for rigorous answers with complete Harvard referencing.

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