Working capital affect the incremental cash flow estimation
How and why does working capital affect the incremental cash flow estimation for a proposed large capital budgeting project?
Expert
Several large projects involve additional working capital. So the investment in additional working capital happens to be part of the initial investment. Same investment is recovered after the completion of the project. There could be some unplanned increase in existing liabilities related with a project but the net working capital change is expected to be a positive value needing an increase in the early investment of that amount.
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