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I am going through June 2015 Q1 cashflow bit, I cant seem to understand the working capital bit: as per Question -The working capital will need to be increased annually at the start of each of the next three years by Yilandwe’s inflation rate and it is assumed that this will be released at the end of the project’s life.
In the answer, why is the working capital decreasing over the years? Am I missing something, help?
The last bit of releasing it is okay, just need to understand the reasoning.The working capital isn’t decreasing – it is increasing!!
They need 9,600 at the start.
There is inflation of 22% in the first year and so they need an extra 22% x 9600 = 2112 at time 1. So the total working capital is now 9600 + 2112 = 11712.
There is inflation of 14.7% in the second year, so they need an extra 14.7% x 11712 = 1722 at time 2. So the total working capital is now 11712 + 1722 = 13434
and so on 🙂
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