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Ursus, Inc., is considering a project that would have a ten-year life and would require a
N1,000,000 investment in equipment. At the end of five years, the project would terminate and
the equipment would have a salvage value of N20,000.
What will be the working capital released in this question ?
The project terminated at yr 5 how do I use the excess amount of the initial investment?Thank you.
There is no requirement for working capital mentioned in the question and it is therefore irrelevant.
There is an outflow of 1M for equipment at time 0 (which is nothing to do with working capital) and an inflow of 20,000 at time 5 (the disposal proceeds).
Have you watched my free lectures on investment appraisal? The lectures are a complete free course for Paper FM and cover everything needed to be able to pass the exam well.
Still want to be cleared on a part sir,the question said the working capital release at the inception of the project is recouped at the end.there is no working capital in the question only the cost of the equipment invested at the beginning ,will that serve as working capital recouped ?
If it does, will it be for 10years or 5years since the project was terminated at year5?The cost of the equipment is nothing to do with working capital.
Given that there is no mention of any investment in working capital in the question, then there is nothing to recoup.
The cash inflow from the sale of the equipment occurs whenever the project is terminated, which in the question you have typed is at time 5.
I ask again, have you watched my free lectures on investment appraisal, because all of this is explained in detail?
Yes I do watch your video,pls do send me the link to watch the one that relates to this,thank you….
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