Inventory Formulas

Question 1

Economic Order Quantity

Answer 1

Square Route of

2 X (Annual Useage of Inventory X Order Cost)/Storage Cost or Carrying Cost Per Unit

Divided By

Storage Cost

Question 2

Inventory Formulas (List)

Answer 2

Economic Order Quantity
Inventory TurnOver
Number of Days Sales In Average Inventory

Question 3

Capital Budgeting Techniques (List)

Answer 3

Payback Period
IRR
Accounting ROR
NPV

Question 4

Payback Period

Answer 4

Initial Investment/ After Tax Net Cash Inflows

Measured in Years
Does not consider time value of money
Does not consider cash flows after the payback period

Question 5

IRR PV Factor

Answer 5

Investment/Annual Cash Flows

Can’t see the difference between this and payback

Take the PV factor I think and find it in the table

Question 6

Accounting ROR

Answer 6

Accounting Income/ Avg. Investment

Question 7

NPV

Answer 7

PV of Inflows - Required Investment = NPV

Think of required investment as “PV of Outflows” but it is stated in today’s dollars so no need to discount

Question 8

NPV

What’s the rate used known as ?

Answer 8

Discount rate is known as the hurdle rate or the cost of capital and is the minimum rate company will accept on an investment

Question 9

Advantages of NPV

Answer 9

Considers time value of money
May take into account risk, higher discount rates for riskier projects
Take into account total profitability
Yield results in dollars

Question 10

Disadvantages of NPV

Answer 10

Required more complex calls
Managers may not follow investment or expenses
Hard to understand

Question 11

NPV and IRR.

NPV greater than 0
NPV = 0
NPV Less than 0

Answer 11

IRR > Discount Hurdle Rate (mean the same discount and hurdle)
IRR = Hurdle Rate
IRR

Question 12

Excess PV Index or Profitability Index

Answer 12

Ratio

PV of Cash Inflows/ Initial Cost of the Project

Not enough funds, if NPV is over 1.0 use to choose

Question 13

IRR

Answer 13

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