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Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › DISCOUNTED CASH FLOW-Q1 JUNE 2015
Dear Sir, this is related to Q1 June 2015.
Sir, if the question says ‘the working capital will need to be increase annually at the start of each next 3 years by inflation rate (assume inflation rate-year 1: 22%, year 2 :14.7% and year 3 onwards 9.8%) and will released at the end of the project life.’
Kindly explain how to calculate the increment in working capital .
Thank You.
The initial working capital is 9600.
This needs to increase in the first year by 22%, so 22% x 9600 = 2112.
So the total working capital is now 9600 + 2112 = 11712.
This needs to increase in the second year by 14.7%, so 14.7% x 11712 = 1722
Same idea again in the third year, and then as usual all of the working capital is recovered in the 4th year.