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The question states that the working capital of $50 million will be required from the end of year one. Why this figure is inflated from Year 1 instead of Year 2?
Why the working capital is recovered in Year 6 instead of Year 5?
The question says that all the costs and receipts are shown at current prices.
Since the first working capital is needed in 1 years time, there will be 1 years inflation.Recovering the working capital at time 6 is an assumption made by the examiner (the examiner has changed twice since this exam was set). It would be more normal to assume that it is recovered at time 5 and if you do this you would still get full marks. (Obviously the final answer would be slightly different, but the final answer is not what is relevant for Paper AFM 🙂 )
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