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In Case Demand in Different Geographical Regions Is About the Same

question 62

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In case demand in different geographical regions is about the same size and independent,aggregation increases safety inventory by the square root of the number of areas aggregated.


Definitions:

Discounting

A financial process used to determine the present value of future cash flows by applying a discount rate, which accounts for the time value of money.

Present Value

The present valuation of a series of future cash inflows or a one-time sum, based on a specified rate of return.

Interest Rate

The proportion of a loan that is charged as interest to the borrower, typically expressed as an annual percentage of the loan balance.

Present Value

The current worth of a future sum of money or stream of cash flows given a specified rate of return, considering the time value of money.

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