# Financial projections in real and nominal terms

Reading 38 - Valuation in emerging markets. Pg 168.

DCF: real and nominal models

Can anyone tell me how to obtain “investment in net working capital”? I can not figure out why the figures are 37, 23, 23, 24?

Thanks

ZealVoyage, you take the change in nominal NWC (245 - 200) = 45 and then convert to real using inflation index: 45/1.2 = 37.5 (rounded to 37), then 30/1.32 = 23 approximately. 33 change in nominal NWC / 1.45 inflation = 23. Does that make sense?

While we on the same Reading, I also have several questions. It seems to be a challenign topic to me.

I was trying to follow the example in the Exhibit# 4, under the REAL PROJECTIONS for YEAR2…

How was the depreciation expense was determined? I can see that for year 1 (80 = (1000*.40 [from Exhibit # 3]) /5. However I cannot understand why its not (1020*.40)-80 [for year 1] / 4 =82?

Also I am having problems determining the tax rate/ expense for Year 2. I see that for year 1 its 35%, but for year 2 it appears to be 37.18%? How was this determined -if it says that tax rates are to stable at 35%?

Many Thanks!