- This topic has 3 replies, 2 voices, and was last updated 11 years ago by
.
- Posts
please can anyone tell me the concept and calculation of incremental working capital??…. why is it recovery in the end of the project life while calculating incremental WC and if its compulsory why its not recovery in question of Partsea Plc.
Further in attempt of DEC 2012, question no 2 – case 1
why in answer they have opted EURO call option???????At the begining of an investment project an amount of working capital is used.Based on the nature if the investment, a growth in the level of working capital is estimated.
Taking the case of Tramont of Dec 11 Q1,it was estimated that the initial working Capital required is GR 40M and it was expected that the annual growth rate of working Capital is in line with the country’s inflation rate which was 9%.
It is thus calculated as
Y0 Y1 Y2 T3 T4
40 000 (.09*40 000 ) 3 600 (40000+3600)*.09=3 924 (40000+3600+3924)*.09= 4 277 (40000+3600+3924+4277)or Y1 (40000*1.09)-40000 = 3 600 and so on.
It is recovery at the end of this project because it is to be sold at the end of its life as stated in the question.In other words working capital is recoverable in cased where the project is to be sold after a given period.
- You must be logged in to reply to this topic.