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In the question I have a query regarding the working capital adjustment.. aren’t we supposed to decrease the already working capital investment provided in the first year from the second year requirement and so on for subsequent years?
I think that maybe you have misread the question.
The question says that they will need additional or a reduction in working capital equal to 10% of the increase or decrease in the sales revenue.
In the second year, the revenue is higher by 19,723. Therefore the need additional working capital at time 1 (the start of the second year) of 10% x 19,723 = 1,972.
In the third year, the revenue is higher by 24,957. Therefore they need addition working capital at time 2 (the start of the third year) of 10% x 24,957 = 2,497.
And so on 🙂
We have used incremental working capital !!!!
Incremental means extra, and the extra needed at time 1 is 1,972 and at time 2 they need an extra 2,497 – as I have explained above.
I read the question again and yes they already told in the qs that any additional or reduction in working capital ! Thanks again
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