KungFuPanda

No it's not. From your quote:

"... working capital for CASH FLOW and VALUATION purposes is defined to exclude cash and short-term debt (which includes notes payable and the current portion of long-term debt)."

Find me an example from the book or Schweser where Capital Budgeting/FCFE valuation NWCInv includes Cash and Short Term Debt and I'll shut up. I'm not arguing with what you said, but for the purpose of the exam everything you deal with is a cash flow, and therefore does not include cash/short term debt.