How is working capital needed in the operations of investments treated in discounted cash flow analysis?

Question

Quizplus · Accepted Answer

Working capital needed in the operations of investments is necessary to ensure the smooth functioning of the investment. Therefore, it should be added to the cost of the investment in discounted cash flow analysis. Additionally, when the investment yields cash inflows, the working capital needed should also be added to the inflows to account for its recovery. Hence, both (a) and (b) are correct.

How Is Working Capital Needed in the Operations of Investments