1. avatar says

    Goodday sir. Please how did you get the 20,000. used for working capital. Am a little confused because usually we are supposed to be given a figure for working capital and its usually spread within all years by minusing it from the initial amount and then recouped at the end of the life of the project. pls help!!!! Thank you

    • Profile photo of John Moffat says

      The second sentence of the questions says ‘In addition a further $20,000 working capital will be required at the start of the project’ (I assume that you have downloaded the course notes that go with these lectures?).

      We do not usually ‘spread within all years’ – the question will make it clear if there are any more outflows necessary.

      We do assume that the working capital is released at the end of the project, and I have done that in this example.

      • avatar says

        Hi John,

        I noticed that in the answer provided on the ACCA website to Question 1 for the June 2013 F9 Paper, the working capital was not stated in year 1 and taken out in the last year but what was stated in each year was the increment (amount) caused by the yearly inflation rate of 4.7%. Why was this done that way? No where in the answer was the 500,00 working capital included.

      • Profile photo of John Moffat says

        The initial working capital of 500,000 is treated as an outflow at time 0 in the answer, which is what we normally do.
        The question says that it is to increase by 4.7% each year and so the extra amount has been charged in each subsequent year – this is quite common in the exam.

        The one thing that the examiner has not done in his answer is bring in the recovery of the working capital at the end of the machines life. If you had brought it in (as I would have done) then you would still have got full marks.
        (The reason that he did not bring it in is because the question says that the machine is to be replaced, and he has therefore assumed that the working capital will still be needed.)

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