Suppose a firm was planning to greatly reduce its raw materials inventory next year by introducing just-in-time inventory control procedures. Assuming no other changes to the firm's operations, what would this do to AFN?
A) It would not change the AFN.
B) The AFN would decrease.
C) The AFN would increase.
D) It cannot be determined without knowing the impact on the profit margin.

Question

Quizplus · Accepted Answer

By reducing its raw materials inventory through just-in-time inventory control procedures, the firm would decrease its need for additional financing (AFN) because it would be reducing its assets. Lower inventory levels mean less capital is tied up in inventory, thus reducing the need for external financing to support operations.

Suppose a Firm Was Planning to Greatly Reduce Its Raw