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Hi sir I always get confused in working capital working while solving NPV APV question
In some question like para fuel recent mock question fluftig when calculating working capital that first calculate required working capital either using inflation rates or any condition related to sale and then find incremental working capital to be added that they use in Npv calculation and fully recover on last year
But in some question like TALAM Co yilandwe Co
They directly add the working capital required in NPV Calculation they don’t do the incremental to be addThis is very confusing to me when to do the incremental type and when to add directly i know in exam I will mess up the working capital because of this confusion
We always need to bring in the extra working capital needed each year, and unless the question specifically states the amount of extra working capital (which is unusual in Paper AFM) we need to work out the total working capital needed and then subtract the working capital already existing and just bring in the extra required.
This applies in both Talam and Yilandwe – in both questions we are bringing in the extra or incremental working capital.
So if I just stick to this method of finding total required and subtracting already invested . Result to add in that year it will be correct?
One more thing if the question says that in 1st year working capital is 100 and it will be increasing as per the inflation rate
Then as welll we will do the same working?
That is first finding the working capital needed after inflation for each year
Then doing the working that is 100 invested in 1st year inflation rate is let’s say 10% so next year we require 110 I will deduct 10 only as working capital invested in year 2
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