A new inventory system will immediately reduce inventory levels by $100,000.If this reduction is permanent and the cost of capital is 13%,how does the net working capital change affect company value?
A) Company value increases by $100,000.
B) NPV increases by $13,000.
C) Company value will not change.
D) Company value increases by $769,231.

Question

Quizplus · Accepted Answer

The reduction in inventory levels by $100,000 is a permanent reduction in net working capital, which directly increases the company's value by the same amount.

A New Inventory System Will Immediately Reduce Inventory Levels by $100,000.If