Definition of Rework

Rework

Refers to a product that does not meet a company’s minimum quality standards,
but which is then repaired in order to meet those standards.

Rework

The refurbishment of a faulty part.

economically reworked

when the incremental revenue from the sale of reworked defective units is greater than
the incremental cost of the rework

defective unit

a unit that has been rejected at a control inspection
point for failure to meet appropriate standards of
quality or designated product specifications; can be economically
reworked and sold through normal distribution channels

spoiled unit

a unit that is rejected at a control inspection
point for failure to meet appropriate standards of quality
or designated product specifications; it cannot be economically
reworked to be brought up to standard

Inventory returns

Inventory returned from a customer for any reason. This receipt
is handled differently from a standard inventory receipt, typically into an inspection
area, from which it may be returned to stock, reworked, or scrapped.

Reprocessed material

Material that has been reworked and returned to stock.

Scrap

Faulty material that cannot be reworked.

Insured Retirement Plan

This is a recently coined phrase describing the concept of using Universal Life Insurance to tax shelter earnings which can be used to generate tax-free income in retirement. The concept has been described by some as "the most effective tax-neutralization strategy that exists in Canada today."
In addition to life insurance, a Universal Life Policy includes a tax-sheltered cash value fund that cannot exceed the policy's face value. Deposits made into the policy are partially used to fund the life insurance and partially grow tax sheltered inside the policy. It should be pointed out that in order for this to work, you must make deposits into this kind of policy well in excess of the cost of the underlying insurance. Investment of the cash value inside the policy are commonly mutual fund type investments. Upon retirement, the policy owner can draw on the accumulated capital in his/her policy by using the policy as collateral for a series of demand loans at the bank. The loans are structured so the sum of money borrowed plus interest never exceeds 75% of the accumulated investment account. The loans are only repaid with the tax free death benefit at the death of the policy holder. Any remaining funds are paid out tax free to named beneficiaries.
Recognizing the value to policy holders of this use of Universal Life Insurance, insurance companies are reworking features of their products to allow the policy holder to ask to have the relationship of insurance to investment growth tracked so that investment growth inside the policy may be maximized. The only potential downside of this strategy is the possibility of the government changing the tax rules to prohibit using a life insurance product in this manner.

defective unit

a unit that has been rejected at a control inspection
point for failure to meet appropriate standards of
quality or designated product specifications; can be economically
reworked and sold through normal distribution channels

spoiled unit

a unit that is rejected at a control inspection
point for failure to meet appropriate standards of quality
or designated product specifications; it cannot be economically
reworked to be brought up to standard

Accelerated cost recovery system (ACRS)

Schedule of depreciation rates allowed for tax purposes.

Agency cost view

The argument that specifies that the various agency costs create a complex environment in
which total agency costs are at a minimum with some, but less than 100%, debt financing.

Agency costs

The incremental costs of having an agent make decisions for a principal.

All-in cost

Total costs, explicit and implicit.

Asian currency units (ACUs)

Dollar deposits held in Singapore or other Asian centers.

Average cost of capital

A firm's required payout to the bondholders and to the stockholders expressed as a
percentage of capital contributed to the firm. Average cost of capital is computed by dividing the total
required cost of capital by the total amount of contributed capital.

Bankruptcy cost view

The argument that expected indirect and direct bankruptcy costs offset the other
benefits from leverage so that the optimal amount of leverage is less than 100% debt finaning.

Best-efforts sale

A method of securities distribution/ underwriting in which the securities firm agrees to sell
as much of the offering as possible and return any unsold shares to the issuer. As opposed to a guaranteed or
fixed price sale, where the underwriter agrees to sell a specific number of shares (with the securities firm
holding any unsold shares in its own account if necessary).

Blue-chip company

Large and creditworthy company.

Buy limit order

A conditional trading order that indicates a security may be purchased only at the designated
price or lower.
Related: Sell limit order.

Carring costs

costs that increase with increases in the level of investment in current assets.

Closing sale

A transaction in which the seller's intention is to reduce or eliminate a long position in a stock,
or a given series of options.

Committee, AIMR Performance Presentation Standards Implementation Committee

The Association for Investment Management and Research (AIMR)'s Performance Presentation standards Implementation
Committee is charged with the responsibility to interpret, revise and update the AIMR Performance
Presentation standards (AIMR-PPS(TM)) for portfolio performance presentations.

Company-specific risk

Related: Unsystematic risk

Conditional sales contracts

Similar to equipment trust certificates except that the lender is either the
equipment manufacturer or a bank or finance company to whom the manufacturer has sold the conditional
sales contract.

Contingent deferred sales charge (CDSC)

The formal name for the load of a back-end load fund.

Cost company arrangement

Arrangement whereby the shareholders of a project receive output free of
charge but agree to pay all operating and financing charges of the project.

Cost of capital

The required return for a capital budgeting project.

Cost of carry

Related: Net financing cost

Cost of funds

Interest rate associated with borrowing money.

Cost of lease financing

A lease's internal rate of return.

Cost of limited partner capital

The discount rate that equates the after-tax inflows with outflows for capital
raised from limited partners.

Cost-benefit ratio

The net present value of an investment divided by the investment's initial cost. Also called
the profitability index.

Counterpart items

In the balance of payments, counterpart items are analogous to unrequited transfers in the
current account. They arise because the double-entry system in balance of payments accounting and refer to
adjustments in reserves owing to monetization or demonetization of gold, allocation or cancellation of SDRs,
and revaluation of the various components of total reserves.

Counterparties

The parties to an interest rate swap.

Counterparty Party

on the other side of a trade or transaction.

Counterparty risk

The risk that the other party to an agreement will default. In an options contract, the risk
to the option buyer that the option writer will not buy or sell the underlying as agreed.
Country economic risk Developments in a national economy that can affect the outcome of an international
financial transaction.

Cross-border risk

Refers to the volatility of returns on international investments caused by events associated
with a particular country as opposed to events associated solely with a particular economic or financial agent.

Day order

An order to buy or sell stock that automatically expires if it can't be executed on the day it is entered.

Days' sales in inventory ratio

The average number of days' worth of sales that is held in inventory.

Days' sales outstanding

Average collection period.

Depository Trust Company (DTC)

DTC is a user-owned securities depository which accepts deposits of
eligible securities for custody, executes book-entry deliveries and records book-entry pledges of securities in
its custody, and provides for withdrawals of securities from its custody.

Domestic International Sales Corporation (DISC)

A U.S. corporation that receives a tax incentive for
export activities.

Economic order quantity (EOQ)

The order quantity that minimizes total inventory costs.

Equivalent annual cost

The equivalent cost per year of owning an asset over its entire life.

Execution costs

The difference between the execution price of a security and the price that would have
existed in the absence of a trade, which can be further divided into market impact costs and market timing
costs.

Fill or kill order

A trading order that is canceled unless executed within a designated time period.
Related: open order.

Financial distress costs

Legal and administrative costs of liquidation or reorganization. Also includes
implied costs associated with impaired ability to do business (indirect costs).

Fixed cost

A cost that is fixed in total for a given period of time and for given production levels.

Flight to quality

The tendency of investors to move towards safer, government bonds during periods of high
economic uncertainty.

Foreign Sales Corporation (FSC)

A special type of corporation created by the Tax Reform Act of 1984 that
is designed to provide a tax incentive for exporting U.S.-produced goods.

Forward sale

A method for hedging price risk which involves an agreement between a lender and an investor
to sell particular kinds of loans at a specified price and future time.

Friction costs

costs, both implied and direct, associated with a transaction. Such costs include time, effort,
money, and associated tax effects of gathering information and making a transaction.

General partner

A partner who has unlimited liability for the obligations of the partnership.

General partnership

A partnership in which all partners are general partners.

Gross domestic product (GDP)

The market value of goods and services produced over time including the
income of foreign corporations and foreign residents working in the U.S., but excluding the income of U.S.
residents and corporations overseas.

Gross national product (GNP)

Measures and economy's total income. It is equal to GDP plus the income
abroad accruing to domestic residents minus income generated in domestic market accruing to non-residents.

Holding company

A corporation that owns enough voting stock in another firm to control management and
operations by influencing or electing its board of directors.

Incremental cash flows

Difference between the firm's cash flows with and without a project.

Incremental costs and benefits

costs and benefits that would occur if a particular course of action were
taken compared to those that would occur if that course of action were not taken.

Incremental internal rate of return

IRR on the incremental investment from choosing a large project
instead of a smaller project.

Industrial revenue bond (IRB)

Bond issued by local government agencies on behalf of corporations.

Information costs

Transaction costs that include the assessment of the investment merits of a financial asset.
Related: search costs.

Installment sale

The sale of an asset in exchange for a specified series of payments (the installments).

Intercompany loan

Loan made by one unit of a corporation to another unit of the same corporation.

Intercompany transaction

Transaction carried out between two units of the same corporation.

Investment product line (IPML)

The line of required returns for investment projects as a function of beta
(nondiversifiable risk).

Limit order

An order to buy a stock at or below a specified price or to sell a stock at or above a specified
price. For instance, you could tell a broker "Buy me 100 shares of XYZ Corp at $8 or less" or to "sell 100
shares of XYZ at $10 or better." The customer specifies a price and the order can be executed only if the
market reaches or betters that price. A conditional trading order designed to avoid the danger of adverse
unexpected price changes.

Limit order book

A record of unexecuted limit orders that is maintained by the specialist. These orders are
treated equally with other orders in terms of priority of execution.

Limitation on merger, consolidation, or sale

A bond covenant that restricts in some way a firm's ability to
merge or consolidate with another firm.

Limitation on sale-and-leaseback

A bond covenant that restricts in some way a firm's ability to enter into
sale and lease-back transactions.

Limited partner

A partner who has limited legal liability for the obligations of the partnership.

Limited partnership

A partnership that includes one or more partners who have limited liability.

Limited partnership

A partnership that includes one or more partners who have limited liability.

Market impact costs

Also called price impact costs, the result of a bid/ask spread and a dealer's price concession.

Market order

This is an order to immediately buy or sell a security at the current trading price.

Market timing costs

costs that arise from price movement of the stock during the time of the transaction
which is attributed to other activity in the stock.

Master limited partnership (MLP)

A publicly traded limited partnership.

Minimum price fluctuation

Smallest increment of price movement possible in trading a given contract. Also
called point or tick. The zero-beta portfolio with the least risk.

Minimum purchases

For mutual funds, the amount required to open a new account (minimum Initial
Purchase) or to deposit into an existing account (minimum Additional Purchase). These minimums may be
lowered for buyers participating in an automatic purchase plan

Minimum-variance frontier

Graph of the lowest possible portfolio variance that is attainable for a given
portfolio expected return.

Minimum-variance portfolio

The portfolio of risky assets with lowest variance.
Minority interest An outside ownership interest in a subsidiary that is consolidated with the parent for
financial reporting purposes.

Negotiated sale

Situation in which the terms of an offering are determined by negotiation between the issuer
and the underwriter rather than through competitive bidding by underwriting groups.

Negotiable order of withdrawal (NOW)

Demand deposits that pay interest.

Net financing cost

Also called the cost of carry or, simply, carry, the difference between the cost of financing
the purchase of an asset and the asset's cash yield. Positive carry means that the yield earned is greater than
the financing cost; negative carry means that the financing cost exceeds the yield earned.

Open (good-til-cancelled) order

An individual investor can place an order to buy or sell a security. That
open order stays active until it is completed or the investor cancels it.

Opening sale

A transaction in which the seller's intention is to create or increase a short position in a given
series of options.

Opportunity cost of capital

Expected return that is foregone by investing in a project rather than in
comparable financial securities.

Opportunity costs

The difference in the performance of an actual investment and a desired investment
adjusted for fixed costs and execution costs. The performance differential is a consequence of not being able
to implement all desired trades. Most valuable alternative that is given up.

Participating GIC

A guaranteed investment contract where the policyholder is not guaranteed a crediting
rate, but instead receives a return based on the actual experience of the portfolio managed by the life company.

Participating fees

The portion of total fees in a syndicated credit that go to the participating banks.

Partnership

Shared ownership among two or more individuals, some of whom may, but do not necessarily,
have limited liability. See: general partnership, limited partnership, and master limited partnership.

Pecking-order view (of capital structure)

The argument that external financing transaction costs, especially
those associated with the problem of adverse selection, create a dynamic environment in which firms have a
preference, or pecking-order of preferred sources of financing, when all else is equal. Internally generated
funds are the most preferred, new debt is next, debt-equity hybrids are next, and new equity is the least
preferred source.

Price/sales ratio (PS Ratio)

Determined by dividing current stock price by revenue per share (adjusted for stock splits).
revenue per share for the P/S ratio is determined by dividing revenue for past 12 months by number of shares
outstanding.

Price impact costs

Related: market impact costs

Product cycle

The time it takes to bring new and/or improved products to market.

Product risk

A type of mortgage-pipeline risk that occurs when a lender has an unusual loan in production or
inventory but does not have a sale commitment at a prearranged price.

Production payment financing

A method of nonrecourse asset-based financing in which a specified
percentage of revenue realized from the sale of the project's output is used to pay debt service.

Production-flow commitment

An agreement by the loan purchaser to allow the monthly loan quota to be
delivered in batches.

Purchase and sale

A method of securities distribution in which the securities firm purchases the securities
from the issuer for its own account at a stated price and then resells them, as contrasted with a best-efforts sale.

Quality option

Also called the swap option, the seller's choice of deliverables in Treasury Bond and Treasury
note futures contract. Related: cheapest to deliver issue

Quality spread

Also called credit spread, the spread between Treasury securities and non-Treasury securities
that are identical in all respects except for quality rating. For instance, the difference between yields on
Treasuries and those on single A-rated industrial bonds.

Replacement cost

cost to replace a firm's assets.

Revenue bond

A bond issued by a municipality to finance either a project or an enterprise where the issuer
pledges to the bondholders the revenues generated by the operating projects financed, for instance, hospital
revenue bonds and sewer revenue bonds.

Revenue fund

A fund accounting for all revenues from an enterprise financed by a municipal revenue bond.

Round-trip transactions costs

costs of completing a transaction, including commissions, market impact
costs, and taxes.

Sale and lease-back

sale of an existing asset to a financial institution that then leases it back to the user.
Related: lease.

Sales charge

The fee charged by a mutual fund when purchasing shares, usually payable as a commission to
marketing agent, such as a financial advisor, who is thus compensated for his assistance to a purchaser. It
represents the difference, if any, between the share purchase price and the share net asset value.

Sales forecast

A key input to a firm's financial planning process. External sales forecasts are based on
historical experience, statistical analysis, and consideration of various macroeconomic factors.

Sales-type lease

An arrangement whereby a firm leases its own equipment, such as IBM leasing its own
computers, thereby competing with an independent leasing company.

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