Wrangler Company is considering a five-year project that requires a typical investment in working capital, in this case, $100,000. Consider the following statements about this situation:
I. Wrangler should include a $100,000 outflow that occurs at time 0 in a discounted-cash-flow analysis.
II. Wrangler should include separate $100,000 outflows in each year of the project's five-year life.
III. Wrangler should include a $100,000 recovery of its working-capital investment in year 5 of a discounted-cash-flow analysis.
Which of the above statements is (are) correct?

Question

Quizplus · Accepted Answer

Statement I is correct because the initial outflow of working capital must be included in the cash flow analysis. 
Statement II is incorrect because the $100,000 outflow occurs only at the beginning and not annually. 
Statement III is correct because the company recovers the $100,000 investment in working capital at the end of the project's life. Thus, the correct statements are I and III.

Wrangler Company Is Considering a Five-Year Project That Requires a Typical