In a discounted cash flow (DCF) analysis, a required incremental investment in net working capital:
A) Should be amortized over the useful life of the equipment, to yield an improved estimate of the return on the proposed project.
B) Can be disregarded because the same amount of cash will be recovered at the end of the project's life.
C) Should be treated as a recurring cash outflow over the life of the project.
D) Should be treated as a reduction in the required cash outflow in period 0.
E) Should be treated as an immediate cash outflow that is later recovered when this incremental investment is no longer needed.

Question

Quizplus · Accepted Answer

In a DCF analysis, an incremental investment in net working capital is considered an immediate cash outflow, reflecting the additional capital tied up in the business operations. This investment is typically recovered at the end of the project's life when the additional working capital is no longer needed, thus it is treated as a cash inflow at that point.

In a Discounted Cash Flow (DCF) Analysis, a Required Incremental