SMU MBA ASSIGNMENTS

Answer : Whether a business is in retailing or manufacturing, there are several cogent reasons for holding inventory. Businesses may hold stocks of raw materials, spare parts for machinery, work in progress or finished goods. Given that there are costs involved with purchases, orders and carriage inwards, a firm might want to minimize its order costs and utilize storage space efficiently. While a business would incur holding costs when storing inventory, these costs can be offset if there are good business reasons for so doing.

== To meet expected demand ==

 

A business must ensure that it has adequate supplies to meet expected demand for its goods, regardless of whether it is a retailing or production environment. Particularly where a business has a high demand and rapid turnover, having stock in storage ensures that the firm can comfortably meet anticipated demand.

 

== To guard against shortages ==

Holding inventory can act as insurance against future shortages. Unexpected shortages in the supply of raw materials or finished goods can affect the production run of a business or its ability to meet demand. Holding inventories allows a degree of continuity for the activities of an enterprise.

 

== To benefit from discounts ==

Suppliers often offer trade discounts for bulk purchases, once those purchases are above a certain amount. A business can reduce the unit cost of materials and its ordering costs (delivery, import duties) by purchasing a large amount of goods/ raw materials to hold in stock.

 

== To deal with variations in usage or demand ==

“Usage” refers to production consumption in a manufacturing process. Increased usage can increase the demand for materials. This is the result of either increased inefficiency or increased production levels. Sometimes a business might cater for special orders or have high seasonal demand that it must address, requiring additional stock to facilitate such occurrences.

 

== To facilitate the production process ==

Stock can allow the manufacturing process to flow smoothly and help the business to respond quickly and effectively to contingencies.

 

== In times of high inflation/ supply shortages ==

Holding vast supplies of inventories can be a deliberate strategy in response to unusual or difficult economic circumstances. In times of high inflation, a business might not wish to purchase stock at increasingly higher prices. Once the business determines that it is feasible to hold additional inventory beyond the usual levels, this is a very sensible strategy.

 

== Some processes require holding work in progress ==

Inventory can also include work in progress. Some products might have longer production cycles than others (like wine or cheese for instance). It is necessary to hold a high volume of inventory to cater for the inherent nature of production in some business contexts.

 

Techniques of Inventory control

Naturally, there are restrictions on how much inventory a business could or should hold. The nature of the product, regulations and maximum storage capacity are some elements that limit or deter a business from holding too much inventory.  Once a business decides to hold inventory, then a proper inventory management and control system is necessary to optimize both the stock levels and inventory costs.

 

There are several techniques a person can use to increase profitability and streamline workflow via proper inventory control. Through research, competitive analysis and experience, an effective business leader can balance costs versus benefits to storing and ordering the necessary supplies to ensure business vitality. The supply chain is made of all materials that help you to produce, market and supply your product. Inventory control means that you have identified every facet of your supply chain and its logistics.

 

 

FIFO

If you deal in perishable items, FIFO (first in, first out) is an important concept to understand and maintain throughout the supply chain. If a grocery store did not rotate their stock, new stock coming in would get taken immediately and older stock would expire, causing great loss. Stock must be arranged by date received.

 

Cutting Edge Control

For a great deal of stock that needs constant management, consider bar codes or RFID (radio frequency identification) where hand-held readers can immediately tell you where valuable merchandise is. Many IT inventory programs on the market provide a wealth of features including tie-ins to USPS, Fed-Ex and/or UPS to track merchandise and provide real-time logistics.

 

Costs versus Convenience

A business owner must balance space available for extra stock versus speed of product turnover, fees for storage, cost in bulk versus regular ordering, and whether clients/end users would be willing to wait.

 

Stock Levels

Defining your minimum stock level will allow you to set up regular inspections and re-ordering of supplies. Take into account emergencies and vendors taking longer than average to replenish stock. This will aid you in arriving at JIT (just in time) ordering, where stock is held for a minimum amount of time before moving on to the next stage in the supply chain.

 

Your Security

Stock security is a necessary cost. Many experts recommend separating staff that is responsible for stock management from staff that has financial responsibility. Many times, shoplifting and thievery is committed by employees rather than a stranger. Security guards, cameras, bar codes and security devices are used by most businesses since the cost of security is minimal compared to the millions of dollars that U.S. businesses lose each year to stolen goods. Training staff in identifying potential security issues and having a clear method of reporting violations is important in reducing crime. Often, shoplifters and thieves use standard techniques to distract employees and take stock.

 

Stock on Hand

Having a great deal of stock on hand has both positive and negative consequences. Having an immediate supply means that end users get their product that much sooner. Speed and immediate gratification for a client can make the difference not only in a sale, but recommendations, repeat business and client loyalty. In the modern business environment where every business is a global business, an emergency or unforeseen circumstance anywhere in the world can render competition without resources you have on hand. Of course, one must take into account using capital in bulk buys, management and insurance costs as well as goods perishing or becoming obsolete.

 

 

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Q.2 a.) A bond of Rs. 1000 value carries a coupon rate of 10% and has a maturity period of 6 years. Interest is payable semi-annually. If the required rate of return is 12%, calculate the value of the bond. ( 5marks)

Answer :  solution Value of bond =Rs50 (PVIFA 6%,12Yeaes ) +1000 PVIF 6%,12 Years. Rs 50 (8.384 ) +1000 (0.497) = Rs 419.2+ 497 = Rs 916.20

Q.3 Examine the features & evaluation of decision-tree approaches.

The Decision-tree Approach (DT) is another useful alternative for evaluating risky investment proposals. The outstanding feature of this method is that it

 

Q.5 Critically examine the pay-back period as a technique of approval of projects.

Answer :  Definition: An investment’s payback period in years is equal to the net investment amount divided by the average annual cash flow from the investment.

 

 

What it means: How long will it take to get my money back?

 

Strengths: It’s easy to compute, easy to understand and provides some indication of risk by separating long-term projects from short-term projects.

 

Q.6 Two companies are identical in all aspects except in the debt-equity profile. Company X has 14% debentures worth Rs. 25,00,000 whereas company Y does not have any debt. Both companies earn 20% before interest and taxes on their total assets of Rs. 50,00,000. Assuming a tax rate of 40% and cost of equity capital to be 22%, find out the value of the companies X and Y using NOI approach.

Answer : Solution

S= 1000,000/.22 =4545454.5

B=25,00,000