Hi there,
On page 29, equation 9, TNOCF’s calcuation has “NWCinv” added in, which represents the same amount of NWCinv invested in the first year of the project. i.e. TNOCF = Sal_T +NWCInv - T(Sal_T - B_T).
It’s probably a silly question, but can anyone please explain to me why this term exists. The textbook says it’s a “return” of net working capital. I simply don’t get it.
Many thanks.
As the project has ended, the investment initially made in working capital is unwound - I.e. inventory sold and receivables collected…
The terminal cash flow assumes you get your money back from WV investments. This is real life!
so it makes sense to receive cash for selling your machine + any WC and subtracting the taxes on the sales of the machine. Note, if the salvage is less than the Bv, the IRS will give you money back.
Got it. Thanks guys!