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Tramont is based in USA and the project is to carried out in the country Gamala
In the Answer in exam kit, they have assumed the initial working capital (40m) to be a part of the borrowing and calculated the impact of financing on the total borrowing 270(initial investment of 230m + WC of 40m).
I solved it by going by the assumption that the initial WC req would be financed by the company and not the debt raised. Is this approach correct (taking into consideration that the project would be carried out in another country) ?
The question does say that they are financing the project by borrowing the funds required in Gamala. That does imply that all the funds required will be borrowed (and the funds required do include the working capital).
So will I get marks if I solve it by the assumption that the working capital is not a part of the borrowed funds?
You will not get full marks, but you will only lose 1 or at most 2 marks.
So if the question mentioned that Tramont will borrow 230m in Gamala, then it would’ve been valid to assume that the WC is funded by the company, and not the loan amoount.
That’s why we use the same logic (WC being included in the borrowed amount) in FUBUKI (DEC 10) as well?
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