Flashcards in Financial Management 2 Deck (13):

1

## What is Economic Order Quantity?

###
The order quantity that minimizes inventory costs.

EOQ : Square Root of (2DO/C)

D : Unit Demand (Annual)

O : Order Cost

C : Cost of Inventory

2

## What is Carrying Cost?

### The cost of keeping inventory.

3

## What is Order Cost?

### Cost of executing an order and starting product production.

4

## What is inventory reorder point?

###
How low inventory should get before it should be re-ordered.

IOP : Average Daily Demand x Average Lead Time

5

## What is a Just In Time (JIT) system?

###
Orders inventory so that you get it just in time for when it's needed

JIT is valuable when Order Cost is low and Cost of Carrying Inventory is high

6

## What is Factoring of receivables?

### Receivables are sold to a financing company where they pay less than the value of the receivables due to a discount related to risk of non-collection

7

## What is a Trade Discount?

###
Buyer saves if paid early

Example: 1/10 Net 30

1% Discount if paid within 10 days

If not- bill is still due in 30 days

8

## What is the cost of forgoing a discount?

### (Discount % x 365) / ((100% - Discount) x (Pay Period - Discount Period))

9

## What is the Prime Rate?

###
A benchmark used for lending only to the best customers

Most customers will be charged Prime + 3%- for example

If the lending institution and the customer are not in the same country- the LIBOR rate is often used

10

## What is the Nominal (Face- Coupon- Stated) Rate?

### Interest rate stated on the face of a bond.

11

## How is Current Yield calculated?

### CY : Interest Payment / Bond Price

12

## What is the Effective (YTM- Market) Rate?

### PV of Principle + Interest : Bond Price

13