- This topic has 4 replies, 2 voices, and was last updated 9 months ago by
.
- Posts
In MJ22 Q3,the question says in year 2 to year 4, capital investment each year will increase by $0.5 per $1 increases in after tax profit.
In NPV calculation, capital Invesment in year 2 to year 4 is not the increasement but including of amount from last year.
This rule will not apply for working capital ?
In which case we will include only increase of capital investment in NPV calculation?
Thank you.In MJ23 Q2 on Oxwick, the question says that ” an additional investment in asset will be required of $28m in Y1 . In Y2 to Y4, additional Invesment in assets at the end of each year will be $0.8$ for every $1 increase in post tax cash flow in that year.”
But in the answer, only incensement of investment in asset is included in NPV calculation.
It is different with the answer in MJ22.
Please explain why.
The capital investment will be a higher mount each year.
However with working capital it is only ever the increment so as to being to the total working capital up to the level required. Working capital is different because it is only the amount being held in the business during the life of a project and is not invested and gone in the same way as capital. investment.So, there is not any case we will include only increase of capital investment in NPV calculation?
In MJ23Q2, the reason that we use the incremental of Invesment in asset is that it includes of working capital ?
For working capital there is only ever incremental working capital each year (obviously only if the question says that the working capital is to increase).
For capital investment there may be extra investment needed in later years but if so the question will specifically detail how much.
- You must be logged in to reply to this topic.