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Sir,
can you plz explain mcq 108 from latest bpp kit i cant understand why the year 1 incremental cash flow is in negative .At the start of the first year they need 100,000 working capital.
Therefore there is an outflow of 100,000 at time 0.
Because there is inflation of 10% and they want the amount of working capital to stay constant in real terms, they need there to be 100,000 + 10% = 110,000 at time 1.
They already have 100,000 and so they need an outflow of another 10,000 at time 1 so as to have increased it to 110,000.sir,
thank you for your reply and making it so easy to understand.In the yr 2 as our project has been finished that is the reason for getting an inflow of 110000,is my understanding correct.
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