Question
Can someone please assist me with understanding the following working capital component of a Capital Budgeting task.. Various experts within Masters have forecast costs and
Can someone please assist me with understanding the following working capital component of a Capital Budgeting task..
Various experts within Masters have forecast costs and working capital requirements related to the project. Cost of goods sold will equal 50% of sales revenues. Selling, general and administrative expenses directly related to the project (excluding depreciation) will be $1.5 million in the first year and increase by 3% per year thereafter. An upfront investment in net working capital equal to 15% of the year 1 sales revenue forecast will be required. This investment in working capital will be fully recovered at the end year 5.
I have calculated the 15% of working capital (inventory) to be $1,500,000. At waht rate is inventory bought each year? Is it bought? What does it mean for this capital to be fully recovered at the end of year 5?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started