Capital bugeting

Vibhor Pandey (FINAL) (106 Points)

15 October 2011  

Dear All,

           I've A Question..A Comapany Is Planning To Invest In A Proposal.It Involves Cash Outlay In Machine For Rs. 500000 And Net Working Capital Of Rs. 50000.The Life Of Machine Is 5 Year With no Salvage Value.

....Now When We Compute Adjusted CFAT , It's A Rule That We Add Rs. 50000 Of Working Capital To 5th year CFAT.As There Is Some Assumption Tht Working Capital Will Be Available In Last Year Of Assets Life.

..Now I Found In Scanner That They Dont Apply This Rule While Calculating CFAT For "Pay Back Period"...They Apply This Rule In "IRR"..."NPV"..

..Is There Any Reason For This?

Thanks And Regards.