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John Moffat.
John Moffat.-
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aaadi25
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Sir,
can you plz explain mcq 108 from latest bpp kit i cant understand why the year 1 incremental cash flow is in negative .
John Moffat
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At the start of the first year they need 100,000 working capital.
Therefore there is an outflow of 100,000 at time 0.
Because there is inflation of 10% and they want the amount of working capital to stay constant in real terms, they need there to be 100,000 + 10% = 110,000 at time 1.
They already have 100,000 and so they need an outflow of another 10,000 at time 1 so as to have increased it to 110,000.aaadi25
- Topics: 2
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sir,
thank you for your reply and making it so easy to understand.In the yr 2 as our project has been finished that is the reason for getting an inflow of 110000,is my understanding correct.
John Moffat
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Yes – that is correct 🙂
aaadi25
- Topics: 2
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thank you so much sir.
John Moffat
- Topics: 57
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You are welcome 🙂
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