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John Moffat.
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Frooti
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Working capital (1,733) (2,547) (4,288) 4,360 4,208
Pls explain this calcultion part
John Moffat
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The question says that the initial working capital is 10% of the year 1 sales revenue. Therefore the working capital at time 0 is 10% x 17325 = 1,733.
The question also says that there will be an increase or reduction in working capital of 15% for every $1 increase or decrease in sales revenue.
The revenue in the second year is 34304 which is an increase of 34304 – 17325 = 16979.
Therefore extra working capital is needed at time 1 of 15% x 16979 = 2,547.The revenue in the third year is 62,980 which is an increase of 62890 – 34304 = 28586.
Therefore extra working capital is needed at time 2 of 15% x 28586 = 4,288.It is the same workings for the remaining years.
Frooti
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I guess my last amount came something else
John Moffat
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In the final year we get back any remaining working capital (as is always the case).
Frooti
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