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hi, can you please let me know
1,what are the discretionary costs and are they relevant to DCF?
2,how to deal with working capital inflation..is there any lecture relating to this query ?
thanksDiscretionary costs are costs only incurred if we do the project, and therefore they are relevant.
If working capital needs to increase, then there will be extra working capital needed each year.
Suppose you needed 100 at the start, but it need to increase at 10% per year.
There will be an outflow of 100 at time 0.
At time 1, we need an extra 10% x 100, so they will be an outflow of 10 at time 1 (and working capital will now stand at 110).
At time 2, we need an extra 10% x 110, so there will be an outflow of 11 at time 2 (and working capital will not stand at 121)
At time 3, we need an extra 10% x 121, so there will be an outflow of 12.1 at time 3.and so on 🙂
Thank you sir i got it 🙂
And what about the working capital in the last year when we are supposed to take it out of the project.. It should be the original one or the inflated one?
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