If your inventory decreases as a result of undertaking a project, why would this count as a cash inflow (i.e increase) in the intial outlay? I figured a decrease in inventory would count as a reduction in NWC and thus increase the initial outlay. Thoughts?
b/c you sold more of your stuff, that’s more revenue, i.e., more cash…which may be offset by increasing A/R or some other items, but by itself, reduction of inventory means more cash.
Concept right, but you didn’t sell anything. If you sold something cash > inventory (inventory is at cost and people don’t sell products at cost). It’s just you had to buy less inventory. Instead of having to keep 1000 inventory on hand for the year, you only need 950, so you’re going to buy 50 units less. This increases you cash flow in the beginning, since no need for you to replace sold inventory.