? 1.2 Working capital
? Working capital
The treatment of working capital is as follows:
? It is treated as an investment at the start of the project (cash outflow).
? At the end of the project the working capital is “released”(cash inflow).
? Any additional working capital requirements are invested when required and only the change in working capital is treated as a cash flow.
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? 1.3 Inflation
? Inflation
Be real | Be nominal (money) |
Do not inflate the cash flows. Leave them expressed in real terms (today's prices). | Inflate the cash flows to find the money values (using the inflation rate). |
Discount at the real rate. | Discount at the money rate. |
Useful if given real cash flows and there is a single rate of inflation. | Useful if different cash flows are subject to different rates of inflation - known as 'specific inflation'. |
Fisher’s formula 費(fèi)雪公式
(1+ i) = (1+ r)×(1+h)
Or: i = r+h+r×h
i = money discount rate or nominal rate
r = real discount rate
h = inflation rate
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