Cash Flow Decisions
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What are the trade-offs involved in deciding the quantity of inventory the firm should carry? In what way does the cash manager face a similar trade-off?
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Solution Summary
The question of purchasing inventory raises the issues of the appropriateness of the use of cash funds. This solution outlines the questions that need to been considered when deciding whether or not to increase inventory.
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Part 1
The trade offs to be considered for carrying inventory:
a. Would an increase in inventory hurt working capital to the point of not having cash for immediate use?
b. Is an increase justified by an increase in sales?
c. Does the purchase ...
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