Additional investment in working capital,even if it may be recovered at the end of a project,must be included in capital budgeting analysis because of the time value of money.

Question

Quizplus · Accepted Answer

Additional investment in working capital will tie up funds for a certain period of time, and the opportunity cost of these funds must be considered in capital budgeting analysis. The time value of money concept takes into account the potential return that could be earned from investing those funds elsewhere during the project timeline. Therefore, even if the working capital investment is expected to be recovered at the end of the project, it must still be included in capital budgeting analysis.

Additional Investment in Working Capital,even If It May Be Recovered