Some investment projects require that a company increase its working capital. Under the net present value method, the investment and eventual recovery of working capital should be treated as:
A) an initial cash outflow.
B) a future cash inflow.
C) both an initial cash outflow and a future cash inflow.
D) irrelevant to the net present value analysis.

Question

Quizplus · Accepted Answer

Increasing working capital requires an initial cash outflow and subsequently leads to a future cash inflow when the working capital is recovered. Therefore, both an initial cash outflow and a future cash inflow should be considered in the net present value analysis.

Some Investment Projects Require That a Company Increase Its Working