The correct answer is Option (4) → Floatation Cost
Floatation cost refers to the expenses incurred while raising capital, such as underwriting or brokerage charges. It affects long-term financing decisions, not working capital requirements.
Factors that do affect working capital include:
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Production cycle (longer cycles need more working capital). A longer production/operating cycle (the time it takes to convert raw materials into cash from sales) means a greater amount of capital is tied up in inventory and receivables for a longer period, thus requiring more working capital.
Inflation (increases cost of inputs). During inflation, the cost of raw materials, labor, and other operating expenses increases, meaning more funds are needed to maintain the same level of current assets and operations, increasing the working capital requirement.
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Growth prospects. A company with high growth prospects will need to increase production, stock more inventory, extend more credit (higher receivables), and increase operational scale, all of which require more working capital.
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