Suppose Barnsdales financial consultants (see Problem ST-1) report (1) that the inventory turnover ratio is sales/inventory =
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Question:
Suppose Barnsdale’s financial consultants (see Problem ST-1) report (1) that the inventory turnover ratio is sales/inventory = 3 times versus an industry average of 4 times and (2) that Barnsdale could reduce inventories and thus raise its turnover to 4 without affecting sales, the profit margin, or the other asset turnover ratios. Under these conditions, use the AFN formula to determine the amount of additional funds Barnsdale would require during each of the next 2 years if sales grew at a rate of 20% per year.
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