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Working Capital

others 515 views 2 replies

HI,

With respect to FM (Capital Budgeting-CA FInal) would like to know the follwing  pertaining to Working Capital :

        1. when calculating the cash outflow why is it discounted only for the first year instead of the entire life of the project ?

         2. why is it considered as an inflow at the end of the life of the project ?

 

Looking forward for the help.

Thanks,

Varun

Replies (2)

Cash outflow at the begining is like investment such as fixed asset which is realized at the end of the business, so the money will back and treated as inflow.

Hi, Thank you Mr Bijoy. However, the cost of fixed asset is incurred once in its life time and then depreciated till sold at the end of life. as a result we get the money back. in case of working capital the sum needs to be invested every year as a result we need to discount it every year but we dont do that. Hence request you to expedite. Looking forward for an explaination. Thanks, Varun


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