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Hello John !
I remember hearing in your lecture that we get our initial working cap back after the machine is replaced. But there is no getting back the WC in this answer at the end of the 4th year. I dont understand why. The question states that the machine would be replaced after four years. Initial working cap is 500000 which will inflate at the rate of 4.7 %It is because the machine was being replaced, the examiner assumed that the working capital would still be needed (and therefore was not recovered).
However the examiner did state that if you had recovered the working capital then you would still get full marks (even though the final answer would obviously be different).
So sccording to my understanding, we should recover the WC if the machine isnt replaced ? How should we approach the exam questions as far as recovery of WC is concerned ?
If the questions says that the machine is being replaced, the do not recover the working capital. If it does not say that, then do recover the working capital.
(Unless, obviously, the question specifically tells you whether or not to recover the working capital.)
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