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investment appraisal: at the end of the project, the total investment in working capital will be released and treated as a cash inflow. however, in the paper June.2013 Q1(a), this seems not the case(the working capital did not recovered at the 4th year). I’m doubt that that whether there are differences. Looking for your reply! Thanks!
Working capital is needed to finance carrying extra inventory, extra receivables etc..
Usually we assume that at the end of the project the working capital will be recovered because there is then no need to carry extra inventory etc..
However, this question says that the machine will be replaced. This suggests that production will continue and that therefore the extra working capital will still be needed.
However, the examiner has said that if students had recovered the working capital at the end of the the four years then they would still be given full marks.
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