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Average net income divided by average investment.
Average after-tax cash inflow divided by average investment.
Question 12. Question : In a discounted cash flow (DCF)
analysis, a required incremental
investment in net working capital:
Student Answer:
Should be amortized over the useful life of the equipment.
Can be disregarded because the same amount of cash will be
recovered at the end of the project's life.
Should be treated as a recurring cash outflow over the life of
the project.
Should be treated as a reduction in the required cash outflow
in period 0.
Should be treated as an immediate cash outflow that is later
recovered when it is no longer needed.