ABC’s business involves dealing with numerous customers and the cash flows within any par- ticular week are unpredictable. It therefore needs to maintain a cash float of £5,000 to be able to pay for day-to-day expenses. (Note: this cash float is not used up, and cannot therefore be ded as a cost ~ in some weeks cash outflows are simply greater than cash inflows and to pro- vide adequate liquidity £5,000 is needed for the firm to operate efficiently. The £5,000 will not be needed when output ceases.) To produce the product it will be necessary to have a stock of raw materials close to hand. The investment in this form of inventory together with the cash committed to work in progress and finished goods amounts to £2,000 at the beginning of production. However, more cash (an extra £1,000) is expected to be required for this purpose at the end of the second year. When the new business is begun a large proportion of raw materials will come from suppliers who will grant additional credit. Therefore the level of creditors will rise by £1,000 over the period of the project.