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Working capital 750,000 772,500 795,675 819,545 ??
Incremental 22,500 23,175 23,870 (819,545)
tutor why year 4 has no working capital( not the incremental one)
I did
year 4 814545(1.03)
but I am stucked on the incremental asyear 1 22.5, 2= 23.17, 3=23.8 4=??
Sales 3,605 8,488 11,474 16,884
Variable cost (2,019) (5,093) (6,884) (10,299)
Fixed costs (1,030) (1,910) (3,060) (4,277)the question said to work to the nearest 1000. shouldnt it be 16000 instead of 16 884 (sales)? I am confused
Answering you last question first, since the sales are all in millions, then to the nearest thousand it is 16884.
Since the working capital initially is 750,000, then in the next year it needs to increase by 3%. 3% of 750,000 is 22,500 (or 22.5 in thousands).
That means working capital is now 750,000 + 22,500 = 772,500. So in the next year it needs to increase by 3% x 772,500 = 23,175.
And so on.In the final year we assume (unless told otherwise) that all the working capital is recovered – so there is an inflow of the total of all the working capital outflows.
I do suggest that you watch our free lectures on this!
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