Arrowhead is a French company with manufacturing operations in Guatemala. Arrowhead’s economic department issued an internal report announcing that it expects wages in Guatemala to increase by 15% in the next 12 months. What type of impact would you expect this forecast to have in the finance department of the firm?

Multiple Choice

• A wage increase would likely result in higher demand for capital in the short term to finance working capital (materials, inventory) or production equipment needs.

• A wage increase would likely result in lower financing costs in the short term, as the demand for working capital (materials, inventory) is not expected to increase.

• A wage increase would likely result in lower financing costs in the short term, as the demand for working capital (materials, inventory) is also expected to decline.

• A wage increase would likely have no impact on the finance department because wages have to do with payroll in the HR department.