The formula is fairly simply but i want to get a better understanding the rationale why we add the Net Working Capital to the initial outlay and of course the reversal when calculating the terminal value. Grazie,
Because you need basic operational items (pens, paper, copiers etc) at T = 0. It’s unreasonable to expect to have sales in month 1 if you don’t have any basic equipment to run your business, even if you already operationalized the machines that produce your product.
In the last month of operations, you do not require additional pens/paper for the next month so there is no expense.
Many thanks
Keep in mind the pens/paper example is simplified. Could be sheets of aluminum for producing car frames, lumber for furniture production, etc etc