Suppose an investment requires the company to increase inventories by $30,000 at the beginning of the project. The company's marginal tax rate is 40 percent. The effect of this change in inventory on the initial cash outlay closest to:

Question

Quizplus · Accepted Answer

The initial cash outlay for increasing inventories by $30,000 is a cash outflow, so the effect is -$30,000. Taxes do not affect the initial investment in inventory directly.

Suppose an Investment Requires the Company to Increase Inventories by $30,000