A credit card company has an annual income of $100,000,000. If the cost of sending out a billing statement is $30,000 and the prevailing interest rate is 6%, how many times per year should the company send out bills?
Hint: I have given you D and K above. Think of the money lost in interest (namely, .06 × $1 for one unit annually) as representing the “holding cost per item” h. Use this information to compute the optimal number of “ordering cycles” (i.e., billing cycles) per year.