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The question stated that ‘additional investment in working capital of 90,000 will be required at the start of the first year of operation’.
going by this statement, I had in used 90,000 in first year and (90,000) in year 5.
but looking at the solution offered by ACCA, they had only put 90,000 positive in year 5.can you please explain this to me?
cheers,
H.Firstly, an investment in working capital always means an outflow of cash at time 0, and then an inflow when the cash is recovered at the end of the projects life.
The examiners answer has done this – if you look at the calculation of the NPV he has subtracted the working capital outflow at time 0 (and has put an inflow at time 5).
I really do suggest that you watch my free lectures on investment appraisal, where this is all explained.
(Our free lectures are a complete course for Paper F9 and cover everything needed to be able to pass the exam well! It really is essential that you either pay to attend courses or you watch our free courses if you want to be successful in the ACCA exams.)
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