Working capital calculation in NPV

Hello sir,

can you please help me out with case BRT co from Kaplan, which starts the following way:

BRT CO (JUNE 11 – MODIFIED) BRT Co has developed a new confectionery line that can be sold for $5.00 per box (in current price terms) and that is expected to have continuing popularity for many years. The Finance Director has proposed that investment in the new product should be evaluated over a four-year time-horizon, even though sales would continue after the fourth year, on the grounds that cash flows after four years are too uncertain to be included in the evaluation. The variable and fixed costs (both in current price terms) will depend on sales volume, as follows. Sales volume (boxes) less than 1 million 1–1.9 million 2–2.9 million 3–3.9 million Variable cost ($ per box) 2.80 3.00 3.00 3.05 Total fixed costs ($) 1 million 1.8 million 2.8 million 3.8 million Forecast sales volumes are as follows. Year 1 2 3 4 Demand (boxes) 0.7 million 1.6 million 2.1 million 3.0 million The production equipment for the new confectionery line would cost $2 million and an additional initial investment of $750,000 would be needed for working capital.

In the answers for the NPV calculation we have the working capital calculated the following way:

Year 0 1 2 3 4 $ $ $ $ $ Working capital 750,000 772,500 795,675 819,545 Incremental 22,500 23,175 23,870 (819,545)

My question is – how do they calculate these values and why are they spread from year 1 to year 4, are we not supposed to subtract the amount only from the PV values at the end in order to derive the NPV?

Thank you!