Essentials of Corporate Finance


Carrying vs. Shortage Costs



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Ross FCF 10Ce Ch18
Ross FCF 10Ce Ch18

Carrying vs. Shortage Costs

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Figure 18.2 – Carrying Costs and Storage Costs

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Figure 18.2 – Carrying Costs and Storage Costs

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Temporary vs. Permanent Assets

  • Temporary current assets
    • Sales or required inventory build-up are often seasonal
    • The additional current assets carried during the “peak” time
    • The level of current assets will decrease as sales occur
  • Permanent current assets
    • Firms generally need to carry a minimum level of current assets at all times
    • These assets are considered “permanent” because the level is constant, not because the assets aren’t sold
  • 18-

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