When do we apply an incremental working capital on Investment appraisal?
ACCA Forums
FMIncremental working capital
14y ago#1When the question specifically asks you to.
It's usually as a % of revenue, e.g. "Working capital equivalent of 5% of revenue will be required at the beginning of each period."
With that info, it's straight forward: you calculate 5% of the CHANGE in revenue, whether positive or negative, and it goes in the beginning of the year, i.e. starting in the 'year 0' column. At the end of the project, this row should net off to zero.
It's usually as a % of revenue, e.g. "Working capital equivalent of 5% of revenue will be required at the beginning of each period."
With that info, it's straight forward: you calculate 5% of the CHANGE in revenue, whether positive or negative, and it goes in the beginning of the year, i.e. starting in the 'year 0' column. At the end of the project, this row should net off to zero.
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