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Dear Tutor,
I have noticed that in some questions it is stated the WC will be “repaid” in the last year of the project, whereas in others not. I have also noticed that some answers, although it is not specifically mentioned in the question, include the repayment of the WC in the last year.
Will it be stated clearly in the exam that the WC will be/ won’t be repaid in the last year of the project or shall we presume that it will always be repaid?
We normally assume that working capital is recovered at the end of the life (i.e. an inflow).
The exceptions are firstly if the question specifically says that it is not recovered (which has been the case in one or two questions), or secondly, if the question makes it clear that the product will continue to be produced (and therefore the machine will need to be replaced and the working capital will therefore still be required).Dear Tutor,
Please clarify my thinking in this area.
I think the working capital required in Year 4 is not related to the current machine so it is not relevant cash flow to the current machine?
Thank you so much
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