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I don’t understand the working capital outflows. In my kit it says the working capital flows will be (23),(23),(24) and 820 in years 1-4. I thought there would only be initial investment of 750 in year 0 and then it will be released in year 4 so 844 due to inflation..
In future you must tell me which exam the question is coming from or if it is in the BPP Revision Kit then the number of the question. I cannot remember the name of every question there has ever been 🙂
The selling price and variable costs are inflating at 3% a year and therefore we would expect the required working capital to inflate at 3% also (more sales result in more receivables etc.)
The initial requirement is 750 and therefore at time 1 they will need another 3% x 750. At time 2 they will need an addition 3% of the new total, and so on.
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