The examples in CFAI often states that the invested working capital outlay in year 0 is returned in full in terminal year. What’s the theory behind this? I’m guessing this would be something like inventory purchases - how would this be returned?
Sell the inventory.
At the end of the project life you no longer need any investment either in fixed capital or NWC. You get back after tax salvage value of fixed capital in the terminal year and entire amount of net working capital. Needless to say that entire amount of NWC is assumed to be returned back in the end because current assets are assumed to be consumed in an year so do not get deprecated.