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From an economic sense, the problem of the money tied up in inventory is precisely the interest on $73,000. (Interest rate you pay on loans if you have any loan
by mcherm 14y ago
From an economic sense, the problem of the money tied up in inventory is precisely the interest on $73,000. (Interest rate you pay on loans if you have any loans, interest you'd get from a bank account if you don't have loans.) So around a dollar a day at today's interest rates. (It gets worse if you figure in the small probability of spoilage or damage that is uninsured.)
- aggronn 14y agoMore concisely (or generally, or just nebulously), it represents an opportunity cost.
- bchallenor 14y agoTrue, though the factory's owners (its shareholders) assume that the factory will beat the return of the market as a whole, and the rate of any loans they have. Otherwise they'd just invest in the market, e.g. via an index tracker. So for them at least the opportunity cost is a little higher.