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Hi there. Please using the lectures, for the lecture on relevant cashflows for working capital, in question 3, why do we use a cumulative approach for the working capital outflows? Isn’t working capital for every year meant to be separate? Thank you.
You take the incremental increase or decrease every year
So if you think in terms of buying inventory at the start for a project – so a cash outflow for working capital.
You keep inventory for so long as the project continues – if it increases what you need then you put only the incremental increases or vice versa with decreases.Then you clear out whatever the last amount was in the final year!
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