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“Tramont Co will also need GR 40 million for working capital immediately. It is expected that the working capital requirement will increase in line with the annual inflation rate in Gamala. When the project is sold, the working capital will not form part of the sale price and will be released back to Tramont Co.”
Could you explain what it means that the working capital will be released back to Tramont Co?
And what is the logic behind the positive working capital at the end of the project?In future you must ask in the Ask the Tutor Forum if you want me to answer. This forum is for students to help each other.
Working capital is needed to finance the inventory, receivables etc. that is needed during the life of the project. Once the project is over they no longer need to carry extra inventory etc. and so the money is released and is therefore effectively a cash inflow.
This is the same as we did in Paper FM (and is as I explain in my free lectures for both FM and AFM).
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