Capital Budgeting Doubt

The reason is that when the business is wind up one get the working capital back in the form of cash after selling inventory and collection of receivable which is invested at the inception of business.

While computing cash flows we also consider

Net Investment in Working Capital

At the beg of project life , working capital increases from Zero & hence is taken as cash outflows in year Zero

At the end of project life, Working Cap. Falls to zero and hence are taken as cash inflows in the terminal year.

Net Investment in Working Capital is taken Zero if no information is given in question.. 

Originally posted by : priyank agrawal
	The reason is that when the business is wind up one get the working capital back in the form of cash after selling inventory and collection of receivable which is invested at the inception of business.

?????

yes, in NPV method

we consider pv factor to calculate pv of cash outfowes/ inflows for that year ...

want more explaination ..

sen me PM

Thank You Anit ....

When the project started then there is the requirement of working capital in the beginning in form of cash, inentory, spares, receivable etc. to run the day to day activity od project.

And this working capital remains in the project throughout the life of project unless otherwise any uncertain happening is there

And at the end of project life this working capital gets released from the project and this is taken as cash inflow in Terminal year of project.