Problem:
Stewart Company has cost of capital 14%. The following function represents the shortage cost for its net working capital
S = 3/(x - 9) for x > 9
Required:
Here S is the shortage cost in thousands of dollars, and x is the level of the net working capital, also in thousands of dollars. Find the following:
(A) The optimum level of net working capital.
(B) The financing cost, shortage cost, and total cost at the optimal point.
Note: Explain all calculation and formulas.