ACCA FM · Chapter 7 · Question 10 of 10
A three-year project requires working capital of $50,000 at the start of year 1. The working capital requirement will increase each year in line with inflation of 5% a year, and all working capital is recovered at the end of year 3. What is the working capital cash flow at the end of year 2?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) -$2,625
Explanation
Working capital needed: time 0 $50,000; time 1 $52,500; time 2 $55,125 (to support year 3 activity). The cash flow at each point is the increment: at time 1 an outflow of $2,500, and at time 2 an outflow of $55,125 - $52,500 = $2,625. The full $55,125 is recovered at the end of year 3.
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