Ch 23 Revised

Ch 23 Revised - Chapter 23 Other Topics in Working Capital...

Info iconThis preview shows pages 1–9. Sign up to view the full content.

View Full Document Right Arrow Icon
  1 Chapter 23 Other Topics in Working Capital  Management
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
  2 Topics in Chapter Setting the target cash balance EOQ model Baumol Model
Background image of page 2
  3 Setting the Target Cash  Balance Theoretical models such as the Baumol  model have been developed for use in setting  target cash balances.  The Baumol model is  similar to the EOQ model, which will be  discussed later. Today, companies strive for zero cash  balances and use borrowings or marketable  securities as a reserve. Monte Carlo simulation can be helpful in  setting the target cash balance.
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
  4 Why is inventory management vital  to the financial health of most firms? Insufficient inventories can lead to lost  sales. Excess inventories means higher costs  than necessary. Large inventories, but wrong items  leads to both high costs and lost sales. Inventory management is more closely  related to operations than to finance.
Background image of page 4
  5 Assumptions of the EOQ  Model All values are known with certainty and  constant over time. Inventory usage is uniform over time. Carrying costs change proportionally  with changes in inventory levels. All ordering costs are fixed. These assumptions do not hold in the  “real world,” so safety stocks are held.
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
  6 Total Inventory Costs (TIC) TIC = Total carrying costs+ total ordering  costs TIC  = CP(Q/2) + F(S/Q). C = Annual carrying costs (% of inv.). P = Purchase price per unit. Q = Number of units per order. F = Fixed costs per order. S = Annual usage in units.
Background image of page 6
  7 = - = 0 Q 2 = EOQ = Q* = . 2FS CP d(TIC) dQ CP 2 FS Q 2 2FS CP Derive the EOQ model from the  total cost equation
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
8 TIC Carrying Cost Ordering Cost 0 EOQ Units $ Average inventory = EOQ/2. Inventory Model Graph
Background image of page 8
Image of page 9
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 05/11/2008 for the course MGMT 165 taught by Professor Vilhauer during the Spring '08 term at UC Merced.

Page1 / 32

Ch 23 Revised - Chapter 23 Other Topics in Working Capital...

This preview shows document pages 1 - 9. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online