In addition to a one million dollar acquisition cost,an investment requires $200,000 working capital during its useful years.This investment in working capital should be:

Question

Quizplus · Accepted Answer

The investment in working capital should be treated as an immediate cash outflow that is recovered at the end of the investment's useful life. This is because the working capital is required to maintain the investment and is not an expense in the traditional sense. Therefore, it should not be added to the cash outflow each year nor disregarded in the capital budgeting decision. Instead, it should be treated as an initial cash outflow that is recovered at the end of the investment's useful life.

In Addition to a One Million Dollar Acquisition Cost,an Investment