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I’m really confused by the question which says
“Working capital available of 15% of the anticipated sales revenue for the year, at the beginning of each year”
However, what is shown in the answer is not 15% of the anticipated sales revenue.. In fact, the revenue is increasing each year but the working capital is lowest in the third year.. I’ve read through the answer scheme and the examiner report but no working is shown with regards to how the working capital is derived.. Your kind assistance in this question is deeply appreciated! 🙂They want the working capital atthe start of each year to be 15% of the revenue. However when there is already some working capital, then all you need the the extra.
Suppose the first years revenue was 1,000. That would mean you needed working capital of 150.
Suppose that the second years revenue was 1,200. That means you would need the working capital to be 180, but you already have 150 from the previous year, and so all you need is the extra 30.
Hope that helps!
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