When evaluating a capital budgeting project, the change in net working capital must be considered as part of
A) the operating cash inflows.
B) the initial investment.
C) the incremental operating cash inflows.
D) the operating cash outflows.

Question

Quizplus · Accepted Answer

The change in net working capital should be included in the initial investment and not in the operating cash inflows or outflows. This is because the change in net working capital represents the change in current assets and current liabilities required to operate the project, which is typically incurred upfront as part of the initial investment. Therefore, it should be included as part of the initial investment and not as part of the incremental operating cash flows.

When Evaluating a Capital Budgeting Project, the Change in Net