QUESTION 3 Delta Agro-Allied Industries Plc (DAAI) is a large agro-processing conglomerate quoted on the Nigerian Exchange Group (NGX). The company processes palm oil, groundnut oil, and cassava-based products at its facilities in Warri and Asaba. The Board of Directors is currently reviewing the company's inventory management and overall working capital financing strategy. The following information is provided: Inventory Data – Palm Kernel Shells (a key raw material): - Annual demand: 72,000 tonnes - Purchase price per tonne: ₦25,000 - Ordering cost per order: ₦180,000 - Annual holding cost: 20% of purchase price per tonne - Current order quantity: 6,000 tonnes per order - Lead time: 10 days - Safety stock maintained: 500 tonnes - Assume 360 days per year Working Capital Financing: DAA's Finance Director, Mr. Emeka Nwosu, is evaluating two alternative strategies for financing the company's net working capital requirement of ₦2,400,000,000: Strategy A – Aggressive Approach: - Finance 40% of net working capital with long-term funds at 15% per annum - Finance 60% with short-term funds at 22% per annum Strategy B – Conservative Approach: - Finance 75% of net working capital with long-term funds at 15% per annum - Finance 25% with short-term funds at 22% per annum Required: (a) Calculate the Economic Order Quantity (EOQ) for palm kernel shells and determine: (i) The number of orders to be placed per year under EOQ (ii) The total annual inventory cost under the current ordering policy (iii) The total annual inventory cost under the EOQ policy (iv) The annual cost saving from adopting the EOQ model (10 marks) (b) Calculate the Reorder Point (ROP) for palm kernel shells and explain its significance to DAAI's production operations. (4 marks) (c) Evaluate Strategies A and B in terms of annual financing cost, risk, and return, and recommend which strategy DAAI should adopt, giving reasons appropriate to a Nigerian listed company. (11 marks) Total: 25 marks