Net working capital even further inventory financing scheme

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Reference no: EM131011393

Currently, a firm has $30 million in cash, $20 million in accounts receivable, $45 million worth of inventory, and $10 million in taxes payable. Th e firm typically pays cash for its inventory, which makes it necessary to keep a large amount of cash on hand. The firm is considering financing its inventory by borrowing from suppliers in the future. Analysis provides a projection of the future working capital accounts: $10 million in cash, $20 million in accounts receivable, $60 million in inventory, $40 million in accounts payable for the inventory, and $10 million in taxes payable. a. Calculate the present and future projected net working capital for the fi rm. b. Based on the change in net working capital, does the financing of inventory appear to be a potentially beneficial practice for the firm? c. If the firm decided to go with a just-in-time inventory process that reduced the current inventory to $5 million and the current cash account to $15 million (other accounts remaining the same), would this reduce the change in net working capital even further than the inventory financing scheme?

Reference no: EM131011393

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