Fin515 week 7 problem set
If a firm increases its inventory, all else being equal, it will likely increase the firm’s cash cycle. The cash cycle is the length of time between when a company purchases inventory and when it receives payment for that inventory. In other words, increasing inventory will lead to an increase in the amount of money tied up in unsold goods and therefore extend the time period before that money can be recouped. This could lead to increased costs due to carrying more stock or decreased profits due to longer wait times for payment.
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