finance lec 5 - Incremental Working Capital

Question 1

what is working capital

Answer 1

CA- CL

Question 2

If we want to run operations we have to have

Answer 2

somethign to start with e.g. if selling products need to have them in stock to eb able to sell them

Question 3

to run operation we need a little bit mroe of what than what and therefore we need to

Answer 3

CA than CL

make an additional investment before we are able to operate

Question 4

as we need more CA>CL and we therfore we need to make an addtional investment before we operate - thats why we need an investment in

Answer 4

working capital

Question 5

over teh life of the prokect working capital investment will

Answer 5

change

Question 6

give example of when investment in WC will change

Answer 6

increase sales so we need more inventory -

part of this will be finded by mony owed but not paid yet

but some we sttill need to add more cash into teh acc

Question 7

what is the reelvant cashflow here in working capital - what are we intersted in

Answer 7

incremental change

Question 8

in npv there is no

Answer 8

begninign og the period

always the end

Question 9

the beginnign of one period =

Answer 9

end of previous period

Question 10

If i ned to invest a t1 i dont have a t1 begninning I have a

Answer 10

t0 ending

Question 11

if intial investment required at beginnig of t2 when do we invest

Answer 11

end of t1

Question 12

if working apital is a +ve value what does this mean

Answer 12

CA>CL

Question 13

Once a project is done what do we recieve

Answer 13

all of the working capital back into the business

Question 14

what si the logic behind once a project is done you get all of working capital back into the business

Answer 14

cash in acc this is already with teh busniess

if got stocks you havent yet sold - you will get rid of them by selling it and recieve cash

if got account recievables - we will get them/ask them to pay it back

if got creditors you’ve paod you will close those accounts

Question 15

to sum up what is the iwc returned to you logic

Answer 15

whatever you invested of the life of project in WC ( which bscally means additional cash and invetoies) will be recievd /recoverd back the bs t the end of the project lofe

Question 16

1step when doing a eokring capital problem

Answer 16

calculat eworking caital flows for project period

find the difference between these ( as the changes are the relevant factors in the wc cf)

remember that these are all negative figures

add it all togethe to get the wc

remebber the first flow is one we add the whole first flow and then the differences