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Working capital investment of $150,000 will already exist at the start of the four-year period, due to the operation of the existing machine. This investment in working capital is expected to increase in nominal terms in line with the general rate of inflation.
Question : Argnil coHello sir, i would like to ask.. based on the sentence above how did u figure out the working capital is not being recovered in time 4?
It is because the question says that the machine will need replacing in four years time.
That means that they will be continuing to produce the goods and that therefore the working capital will still be needed, and therefore will not be recovered.
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