- This topic has 5 replies, 2 voices, and was last updated 8 years ago by
John Moffat.
John Moffat.-
Posts
-
armaghanbutt
- Topics: 27
- Replies: 39
- ☆☆
sir ! iam confused in working cap calculation …. especially last year ,like this june11Q
Working capital 750,000 772,500 795,675 819,545
Incremental 22,500 23,175 23,870 (819,545)Working capital (23) (23) (24) 820
WHY 820 POSITIVE In LAST ?
SAME HERE IN DEC2010
Year Working capital ($) Incremental investment ($)
0 250,000
1 261,250 11,250
2 273,006 11,756
3 285,292 12,286
4 298,130 12,838
Working capital (11) (12) (12) (13)
i dont understand the difference
John Moffat
- Topics: 57
- Replies: 50606
- ☆☆☆☆☆
You obviously have not watched my free lecture on investment appraisal!! Why not???
In June 2011, the initial working capital was 750,000. Then each year there was more working capital needed.
At the end of the project we assume that all of the working capital is no longer needed and so the total of 819,545 is released and is therefore an inflow. (819,545 is the total of the in initial amount plus the extra each year).The December 2010 question specifically said to ignore the working capital recovery!
armaghanbutt
- Topics: 27
- Replies: 39
- ☆☆
i watched your lecture but still confuse only in wrking capital like thisQ june 13HDW,here its not mention abt recovery but thn y not he took 3rd yr cashflow to 4th yr
Working capital (24) (25) (26) (27)
John Moffat
- Topics: 57
- Replies: 50606
- ☆☆☆☆☆
In June 2013, the question says that the machine will be replaced at the end of its 4 year life. This will mean that they intend to continue producing the product and that therefore the working capital will still be needed (and therefore not released).
This was an unusual trick for the examiner to play. However he realised that, and said that he would still give full marks if the working capital was released at the end of 4 years (even though obviously the final NPV would be different).
armaghanbutt
- Topics: 27
- Replies: 39
- ☆☆
if not specify we will take a sum of earlier year n it will b positive always ?
if specified incremental ?John Moffat
- Topics: 57
- Replies: 50606
- ☆☆☆☆☆
The release of working capital at the end of the life of the project will always be positive – it is the total of all the working capital that has been invested during the life of the project.
Sometimes there is only an investment in working capital at the start of the project. Other times there is an investment at the start and then extra in later years (incremental means extra). The question will specify which.
In all cases however, the amount released at the end is the total of all invested during the life.
John Moffat- You must be logged in to reply to this topic.