interest if we were to hold this cash with bank or any other investment opportunity.
The working Capital requirements will be reduced because of lower inventory level (a Current asset), and as we know, Net working capital = Current assets - Current liabilities. Cash conversion cycle will shorten as lesser cash will be 'trapped' in inventory.
Present value of money is important in Capital budgeting decisions because these are usually longer term decisions and cash inflows and outflows occur at different points in time. In order to calculate the true profitability of an investment , time value of money should be taken into consideration at all times and in all methods used.