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Hello sir!
I have a doubt in question 1- HDW CO past paper June 2013.
usually while calculating npv we will recover the working capital at the end of the project’s life. But here in this problem, they haven’t recovered the working capital and no information is provided for in terms of working capital recovery.
could you please help me out in solving this problem, sir?
thanks in advance.It is because the question says that the machine would be replaced. Therefore production will still continue after the four years and so the working capital will still be needed.
I do explain this in my free lectures on investment appraisal.
(However, the examiner has not been consistent about this in other questions, and he did make it clear after the exam that you will still get full marks if you had recovered the working capital – even though obviously the final answer would be different. The marks are for the workings and not for the final answer.)
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Thank you Sir!
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