Capital bugeting

IPCC 740 views 2 replies

Vibhor Pandey

FINAL

106 Points Joined January 2010

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.

Replies (2)

CA Pallav Singhania

IT System Auditor

33683 Points Joined April 2010

working capital....should be taken at the end of the project.....in accordance with PV factor...

Arniv Sharda

CA Final

3006 Points Joined September 2010

wc is recovered at the end of 5 th year and thats why it is taken as terminal value at end of year 5

nw pay back period is jus when u will get back ur money that u have invested

but incase of npv statement u check whether ur cash inflow is more than cash outflow as a result u hav to take all the cash inflows occuring during that period

thats why it is written in calculation of npv

cheers