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in npv calculation,do we have to include the existing working capital from the existing machine?(based on f9 sep/dec 2015 question 5)
Have you not looked at the examiners answer? 🙂
Since the question says that the working capital already exists, we don’t need to bring it in (only the additional working capital needed because of inflation).
since this is replacement of machine,how about the npv for first machine?should i recover back the working capital?(as there is an investment of working capital,non recovery will bring disadvantage for the npv for first machine)
If you mean the NPV of the previous machine, then this is not relevant because the previous decision to buy it cannot be changed now.
what i mean is if i am calculating npv for a new machine, i will have to invest in working capital in the first year isn’t it?so what if i will replace the machine in future?do i still need to take into account of working capital recovery as i did invest in working capital in the beginning of the period.
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