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working capital in cash flow

ASalawi sayed3y ago
Hello Sir, With regard to discounting cash flows. If we are told for example that there would be a 10% of sales working capital required in each beginning of the year for example for four years So if the required working capital in year 2 is $2000 and the working capital of year one is $1800 then we have to add $200 only as working capital in year 2 . But here why are assuming always that the working capital is still available, may be its already used or got reduced Is there a situation we may encounter similar to this in the exam. Thanks.
John MoffatJohn MoffatTutor3y ago#1
It is very common in the exam! The working capital is extra being held to finance the running of the business. It is not 'used up' and at the end of the project all of the working capital is recovered, as explained in my free lectures.
ASalawi sayed3y ago#2
If the working capital is not to be used and it is extra so why it is to be added then again it is recovered. Thanks for help Sir,
John MoffatJohn MoffatTutor3y ago#3
The working capital is held in order to finance receivables, inventory etc.. At the end of the project it is no longer needed and is therefore recovered (and is therefore an inflow). Again, have you watched my free lectures on this? :-)
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