Corporate Finance - Return of NWC investment, initial

Sunshine4ever

when calculating terminal year cashflow why is the initial investment in NWC returned in the terminal year?

Sportsman

Question will tell you that the terminalyear cash flow includes return of net working capital

. Or not.

Look at the question carefully and determine for yourself what to do

zephyranalyst

Question will tell you that the terminal year cash flow includes return of net working capital

. Or not.

Look at the question carefully and determine for yourself what to do

benbenxiong

As to why it is returned, it's because this is money that you use to run the project. Once the project is over, the money is taken out of the project and is considered a cash flow in the terminal year.

thecfawannabe

you took the NWC at the beginning of the project for a specific purpose, and at the end you returned that (after selling the NWC left over) because you no longer needed it. It was capital locked up.

very similar to why you salvaged your Fixed Capital expenditure. Why didn't you ask the same question as to why the fixed equipment purchased was salvaged?

CP

zhaoyp

if it doesnt say that NWC is returned, which i have no reason why it wouldnt be, then dont include it.

but every jv project I've seen, has WC funded in the beginning, a min balance maintained throughout the project, and then returned at the end.

maybe in the limited situation where there is just enough WC to cover taxes on asset disposal would you not "return it", but even then you would factor it in the calc.

tarunajwani

yea, my question was not about how to approach the questions but rather, why the NWC is returned.