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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.
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.
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,
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