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Hello.
Could you look at answer of 1st Question of June 2013, please?
Why didn’t they add back working capital???
I understand inflation and incremental value of working capital, but I couldn’t get why whole working capital is substracted from present value at the beginning of the project but it isn’t added back at the end of the life of project???It is because in the second sentence of the question, it says that the machine will be replaced.
This suggests that the product will continue to be made and therefore that the working capital will still be required – so not recovered.This was a very strange assumption for the examiner to make in his answer, and he accepted that – he said that if students had recovered the working capital then they would still get full marks (even though obviously the final NPV would be different).
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