PDA

View Full Version : Cash flow analysis of raw material purchases


DOB
Oct 3, 2008, 12:51 AM
I have a raw material that is going to increase in cost 30% as of November 15th. If costs were not going to increase I would buy the forecasted demand quarterly... but with the price increase I want to quantify if it makes financial sense to buy my annual demand now before the price increase. I am looking for guidance regarding how to model and how to quantify the costs of buying a years supply now vs buying every quarter the demand for the upcoming quarter. My estimate for my weighted average cost of capital is 20%.

ashmoru
Oct 5, 2008, 02:03 PM
Hai DOB
Then why don't u go and hedge in the commodity market and enjoy the profit. Are you sure the aggregate demand is going to be the same as usual during this ressesion period. If not, then buying it physically would disrupt your supplychain flow and also force you to increase your products selling price higher than your competitors and still maintain a WACC of 20%. That would be a task.

OK Anyway it was not a clear answer to your query, I was just debating on your topic.