Question

Net working capital

• A. can be ignored in project analysis because any expenditure is normally recouped by the end of the project.

• B. requirements generally, but not always, create a cash outflow at the beginning of a project.

• C. expenditures commonly occur at the end of a project.

• D. is ignored in project analysis because any change in net working capital is a sunk cost.

• E. is the only initial expenditure where at least a partial recovery can be made at the end of a project.

Answer 1

Answer : Correct Option is (B.) requirements generally, but not always, create a cash outflow at the beginning of a project.

Reason :

Net Working Capital is considered as relevant cost which can either be cash inflow or cash outflow at initial year. But generally it requires purchase of additional inventory , incresae in accounts receivable , which increases net working capital and therefore Net Working Capital  requirements generally, but not always, create a cash outflow at the beginning of a project.