Corp fin

Here I share the explanation given in Schweser:
” Because a typical firm has both debt and equity financing, an increase in firm tax rate will decrease after tax cost of debt and consequently decrease the firm’s WACC, which can project’s NPV from negative to positive. A decrease in market value of firm’s debt will increase the market yield on the debt, which will increase the after tax cost of debt and firms WACC. Increases in inventory increase CA and WC needs, not capital investment.”
 
The question writer should be hacksawed immediately. I wouldn’t worry about seeing such a garbage Q in your exam.
But you should know that inventory is not a capital investment
 
Geo, inventory is a capital investment as far as I know, conceptually at least. Unless you can provide a source that proves it is not.
And excess cash is not part of working capital. It’s a non-operating asset.
 
References? IAS 2, IAS 16, IFRS 10, ASC 330. The fact that no reporting issuer in the world has inventory under the investment section of their financials.
Show me one company that has non-operating cash on its balance sheet. It doesn’t exist. This is pure nonsense. I honestly don’t even know where you would have got this idea from.
 
The definition of CI is an asset that provides operating benefits for several years. Then I guess inventory is not a capital investment in the formal definition.
Excess cash should seperated based on the analyst’s subjectivity and the company’s liquidity needs, it doesn’t nessecary appear that way on the balance sheet, but you should account for it.
 
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