he $40,000 of working capital is returned at the end of the project. If the net change in working capital is always zero, can working capital be ignored in the analysis
For a capital budgeting analysis a company requires an increase of $40,000 of working capital in Year 0. The analysis assumes the $40,000 of working capital is returned at the end of the project. If the net change in working capital is always zero, can working capital be ignored in the analysis? Explain.
Step 1
Present value of cash inflows=Cash inflows present value of discounting component (rate percent, period). As a result, the project's networking capital demand would be larger than its initial budget. Working capital would be released at the end of the project's life cycle and would be discounted to present terms using the specified interest rate, resulting in a present value of inflow from working capital releases that are less than the initial investment in working capital.
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