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Sir in this Qs it was written that initial Wc of 10 will be required at start of year 1, subsequently WC of 15% of sales for that year will be required at start of year 2 to 4
Sales were as follows
Yr 1 = 10
Yr 2 = 40
Yr 3 = 48
Yr 4 = 57.6Now in WC working can I show like this
0 1 2 3 4
WC (cumulative) 10 6 7.2 8.64
WC required 10 -4 1.2 1.44
WC recovery -8.64And then in my main NPV appraisal format can I show like this
0 1 2 3 4
WC required -10 4 -1.2 -1.44
WC recovery 8.64Would this be fine or any marks will be deducted for this?
And instead of WC required I think WC investment will be a more better word to use?
What you have written is fine and there would be no marks deducted. (The examiners answer is exactly the same except that he has rounded off the figures).
As far as the description is concerned – both investment in WC and WC required mean the same thing 🙂
But 1 thing more sir I have shown WC recovery in working as negative fig and in main Npv schedule I have shown as positive fig. So is this correct?
Like wise WC investment I have shown in working as positive fig and in main Npv schedule I have shown as negative fig. So is this also correct?It depends what formula you use in the spreadsheet to get the total cash flow.
The working capital recovery is added to the cash flows.
If you have set up a formula in the earlier years where the working capital is being subtracted and you replicate the same formula, then at time 4 you need to show the working capital as a negative amount because subtracting a negative figure is the same as adding it.
If you are not replicating a formula from previous years then you can show it as a positive figure and the add it in the total.
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