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Hello sir John Moffat,
“investment in replacement machinery would be needed after five years.” so reads a part of a question tagged
“SpringBank co” from Kaplan.
If I am not mistaken, I learned from you that if there is replacement, Working Capital needs would continue BUT in the question above, they recouped it back regardless an open statement above.
Correct me sir.
They did this
Year 0 5
WC (400) 400but I would have ignored the figure at year 5
The examiner is not consistent on this – in recent exams he has not brought back the working capital if the product will be continued to be produced (but in earlier exams he did do). However he has made it clear that he will accept answers where the working capital is recovered (and now is being more specific in his questions in order to avoid the problem).
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