Definition: Managing credit extended to customers (accounts receivable).
Costs: Financing costs, administrative costs, delinquency costs, bad debts.
Benefits: Increased sales and profits.
Credit Policy: Set of parameters for extending credit.
- Credit Standards: Criteria for granting credit (character, capacity, capital, collateral, conditions).
- Credit Terms: Credit period, cash discounts offered (e.g., 2/10 net 30).
- Annualized Cost of Cash Discount: $\frac{\text{Discount \%}}{100 - \text{Discount \%}} \times \frac{365}{\text{Credit Period - Discount Period}}$
Credit Evaluation: Assessing customer creditworthiness through various information sources.
Credit Control: Procedures for timely collection and monitoring.
- Average Collection Period: $\frac{\text{Average Receivables}}{\text{Credit Sales per day}}$
- Ageing Schedule: Classifying receivables by age to identify overdue accounts.
- Lines of Credit: Maximum credit limit for each customer.
Evaluation of Credit Policies: Compare incremental benefits (increased contribution) against incremental costs (financing, bad debts, collection).

Types of Inventories: Raw materials, work-in-progress, finished goods.
Reasons for Inventories: Transactionary, precautionary, speculative motives; uninterrupted production/sales.
Costs of Inventory:
- Carrying Costs: Storage, insurance, obsolescence, opportunity cost of capital.
- Ordering Costs: Placing and receiving an order.
- Stock-out Costs: Lost sales, production delays, loss of goodwill.
Objective: Minimize total inventory costs while ensuring smooth operations.
Techniques:
- ABC Analysis: Classifies inventory items by value (A-high value, B-medium, C-low) to prioritize management effort.
- Economic Order Quantity (EOQ) Model: $EOQ = \sqrt{\frac{2AO}{C}}$
  - A = Annual demand, O = Ordering cost per order, C = Carrying cost per unit per annum.
  - Minimizes total ordering and carrying costs.
- Re-order Level: Inventory level at which a new order is placed. $R = M + tU$ (M=min level, t=lead time, U=usage rate).
- Safety Stock: Buffer inventory to guard against unexpected demand or delays.
- Quantity Discounts: Evaluate if savings from discount outweigh increased carrying costs.

Concept: Determining the worth of an asset (financial assets here).
Economic Value (Capitalized Value): Present value of all future cash flows, discounted at a rate commensurate with risk. $V_0 = \sum_{i=1}^{n} \frac{CF_i}{(1+k)^i}$
Required Rate of Return ($k$): $k = I_f + r_p$ (Risk-free rate + Risk premium).
Bond Valuation:
- $B_0 = \sum_{i=1}^{n} \frac{I}{(1+k_d)^i} + \frac{RV}{(1+k_d)^n}$
- Yield to Maturity (YTM): The discount rate $k_d$ that equates the bond's present value to its current market price.
- Convertible Debentures: Value depends on interest payments, share price at conversion, and redemption amount.
- Deep Discount Bonds (DDB): Zero-coupon bonds, valued as PV of face value at matu