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investment decision

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › investment decision

  • This topic has 1 reply, 2 voices, and was last updated 11 years ago by AvatarJohn Moffat.
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  • May 4, 2014 at 1:52 pm #167380
    Avatarban123
    Member
    • Topics: 16
    • Replies: 15
    • ☆

    Hi,

    It is not clear to me, is the working capital a relevant cash flow item for the investment decision? The book says that it will be repaid at the end (inventory A/R), so we do not have to calculate with it? Seems as though it only gives a time delay, but not a total difference.

    In all, do we have to add the working capital elements of the investment to the decision calculation or not?

    Thanks

    May 4, 2014 at 2:49 pm #167392
    AvatarJohn Moffat
    Keymaster
    • Topics: 57
    • Replies: 54836
    • ☆☆☆☆☆

    Working capital is a cash flow and is therefore relevant.

    We usually assume that it is recovered (i.e. is an inflow) at the end of the project.

    Can I suggest that you watch my free lecture here on relevant cash flows for DCF?

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