Finman

A. Define the ff:

1. Payment Float - Interval between the days a check is written (decreasing the firm's cash balance) and the day the amount is actually deducted from firm's bank balance.

-Company-written checks that have not yet cleared.

2. Availability Float - The time period (or sometimes, the amount) represented by checks that have been deposited but not cleared.

* Checks deposited by a company that have not yet been cleared.

3. Net Float - Sum of disbursement float and collection float

* The total amount of float in a bank account. It is calculated by subtracting the disbursement float money spent but not yet taken out of the account from the collection float money deposited but not yet cleared. The net float, when added to or subtracted from the previous balance, shows how much money is in the bank account. The net float is important when an account holder deal primarily in checks, and, thus, transactions take longer to process; it is less important when an account deals primarily in direct deposits and debit cards. 

B. What is economic order quantity? (EOQ)

- Economic order quantity is the order quantity that minimizes total inventory holding costs and ordering costs. 

- Economic Order Quantity, better known as EOQ, is a mathematical tool for determining the order quantity that minimizes the costs of ordering and holding inventory. It attempts to minimize total inventory cost by answering the following two questions.

1) How much should I order? (Economic Order Quantity)

2) How often should I place each order? (Cycle Time)

This model assumes that the demand equation faced by the firm is linear. In other words, the rate of demand is constant or at least nearly constant.

The goal is to minimize total inventory cost. Inventory costs are made up of Holding and Ordering cost. Holding cost include the cost of financing the inventory along with the cost of physically maintaining the inventory. These costs are usually expressed as...