Corporate Fin Reading 25 Ex#7 why, following, examples, except

Chuckrox

I am following this spreadsheet example to the end, except I’m not understanding why NWCInv is being added back to each of the ATOCF.  None of the other examples are doing that, plus you add the total NWCInv back to the terminal cash flow. Anyone else think this is wrong or is there a reason?

Houjichasan

I understand the first part.  What doesn’t make sense to me is in year 6 there is a return of NWC of 416.  I don’t understand why it’s being reflected in the Total after-tax cash flows as well as the terminal CF.  Because in year 6 the TNOCF is 992+150-45+416 = 1,513.
Shouldn’t the rows “After tax operating cash flow” and “total after-tax cash flows” be the same?  Since you’re reflecting the return of NWC in the year 6 value (+416).

bapswarrior

Read the third bullet: The initial investment in net working capital is $200,000. At the end of each year, net working capital must be increased so that the cumulative investment in net working capital is one-sixth of the next year’s projected sales.
If you understand the principle of investing in NWC at the beginning of a project, this shouldn’t be hard to grasp. Instead of one outlay, the project needs additional NWC every year.
Also, note that the sum of the yearly outlays of NWC are returned to the firm at the end of the project: 200 + 50 + 63 + 31 + 34 + 38 = 416.

tikfed

I guess I don’t understand why it’s subtracted at the end of each year (pg 36) when you’re calculating the NPV.

LorrinCFA

There is an initial investment in NWC, but the firm will need further investment in NWC each year to support next years’  projected increase in sales.
It was said in one of the bullet points there

Flok

Page 35-36 in the CFAI text (corp finance book).

jawz

What page?