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In que the working capital line is not giving clear meaning. It says that we should inflate annually at start of year of 2-4 which means that we don’t have to inflate for year 1, and it will be 1025 in year 1, 1025 in year 2 and 1076 in year 3.
Can I solve in this way?No, for two reasons.
Firstly the working capital is needed at the start of each year. The start of the first year is ‘now’ i.e. time 0. The start of the second year is in 1 years time i.e. time 1, and so on.
So they need 1025 at time 0 and they need 1066 at time 1 (1025 x 1.04). However, at time 1 the outflow is only the difference of 41 because they already have 1025.
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