Accounting for working capital in investment appraisal issue.

Bbona00711y ago

Dear Sir, In the past exam question (6/11) for BRT company the working capital of 820 was given back in Year 4, however, in the question of CJ Co (12/10) in Yr4 the working capital figure was (13). Shouldn't it have been 285 instead (285 is the figure we get when inflating the working capital)? I cannot understand the logic here. Can you please enlighten me? Thanks very much

John MoffatTutor11y ago#1

Two things! Firstly we usually assume that when we come to the end of a project we get back all of the working capital that we had invested (not the inflated amount - simply the total of all the outflows). Secondly however, in this question it specifically told you (in the final paragraph) to ignore any working capital recovery.

Bbona00711y ago#2

Thank you for clarifying this for me Sir. Read the question so fast that i missed the ignore any working capital recovery part. >_<

John MoffatTutor11y ago#3

You are welcome :-)

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