When discounted cash flow methods of capital budgeting are used, the working capital required for a project is ordinarily counted as a cash inflow at the beginning of the project and as a cash outflow at the end of the project.

Question

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The working capital required for a project is not counted as a cash inflow at the beginning of the project when using discounted cash flow methods of capital budgeting. Instead, it is considered as an initial investment, which is a cash outflow at the beginning of the project. At the end of the project, the working capital is recovered, which is a cash inflow.

When Discounted Cash Flow Methods of Capital Budgeting Are Used