If the firms opportunity cost of capital for

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Unformatted text preview: rces the firm to consider its inventory needs more carefully. The objective is to lower the firm’s inventory investment without impairing production. If the firm’s opportunity cost of capital for investments of equal risk is 15 percent, every dollar of investment released from inventory increases before-tax profits by $0.15. International Inventory Management International inventory management is typically much more complicated for exporters in general, and for multinational companies in particular, than for purely domestic firms. The production and manufacturing economies of scale that might be expected from selling products globally may prove elusive if products must be tailored for individual local markets, as very frequently happens, or if actual production takes place in factories around the world. When raw materials, intermediate goods, or finished products must be transported long distances—particularly by ocean shipping—there will inevitably be more delays, confusion, damage, theft, and other difficulties than occur in a one-country operation. The international inventory manager therefore puts a premium on flexibility. He or she is usually less concerned about ordering the economically optimal quantity of inventory than...
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