Financial Management 2 Flashcards Preview

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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

What is a Zero Coupon Bond?

No interest payments made

Bond sold at a discount

Interest reflected when Bond matures