Hey Andrew, I hope you're doing great! So, I'm a bit confused about working capital requirements. Sometimes they take the incremental amount, and sometimes they take the gross amount. Can you explain the difference and how we should choose between them?
@Iamahmedsanjer Hello - the key thing is to remember that investment appraisal focuses on future, incremental cash flows. So you would only ever include the incremental working capital requirement for that specific project when doing an NPV. You may have sent the total amounts when doing a free cash flow valuation - this looks at the entire company's cash flows, not just an individual project, so will include the total working capital required for the business each year. Best of luck with the exam! Andrew
Hi Andrew, thanks for the detailed explanation. But I really felt that the theory part was a bit difficult especially linking it to the scenario and explaining the pros and cons. Example in this 50 marker question there were some unexpected theory questions like the limitations of sensitivity analysis, linear programming, etc. Any tips on how to tackle these?
@@dabba9998 The best way is to keep practicing questions - the more you do, the better the breadth of your knowledge. These aren't that unexpected! Keep referencing the scenario, and using information provided. For example consider the industry they operate in, and make sure your points are realistic in the context of the business. Good luck!
It was great working on this video! Best of luck with the big 50 mark question - and remember those Professional Skills Marks 👌
Hey Andrew, I hope you're doing great!
So, I'm a bit confused about working capital requirements. Sometimes they take the incremental amount, and sometimes they take the gross amount. Can you explain the difference and how we should choose between them?
@Iamahmedsanjer Hello - the key thing is to remember that investment appraisal focuses on future, incremental cash flows. So you would only ever include the incremental working capital requirement for that specific project when doing an NPV.
You may have sent the total amounts when doing a free cash flow valuation - this looks at the entire company's cash flows, not just an individual project, so will include the total working capital required for the business each year.
Best of luck with the exam!
Andrew
Hi Andrew, thanks for the detailed explanation. But I really felt that the theory part was a bit difficult especially linking it to the scenario and explaining the pros and cons. Example in this 50 marker question there were some unexpected theory questions like the limitations of sensitivity analysis, linear programming, etc. Any tips on how to tackle these?
@@dabba9998 The best way is to keep practicing questions - the more you do, the better the breadth of your knowledge. These aren't that unexpected!
Keep referencing the scenario, and using information provided. For example consider the industry they operate in, and make sure your points are realistic in the context of the business.
Good luck!