Estimating Financing Costs in Managing Inventory Positions at Large Corporations: Practice and Implications

Abstract

In estimating desired inventory holdings business organizations must use some estimate of their cost of funds. While conceptually the overall or weighted average cost of capital would seem to be the appropriate measure, survey of senior U.S. and Canadian financial executives at large firms revealed that most of the responding firms used their cost of borrowed funds. As is demonstrated in the paper, use of the cost of borrowed funds rather than the overall cost of funds can cause inventory positions to be excessive during certain periods and deficient during other periods.

Citation

Fraser, D.R. and Gaither, N. (1984), "Estimating Financing Costs in Managing Inventory Positions at Large Corporations: Practice and Implications", Managerial Finance, Vol. 10 No. 2, pp. 21-26. https://doi.org/10.1108/eb013538