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This is the amount of the working capital investment. The overall impact of the working capital on the analysis is that $40,000 is a cash outflow in Year 0 and $40,000 is a cash inflow in Year 5. The Year 0 outflow is not discounted, and the Year 5 inflow is discounted using the PV of $1 factor for 12% for 5 years. Then the two amounts are netted together to calculate the overall impact of the working capital investment on the NPV.
The overall impact of the working capital on the analysis is that $40,000 is a cash outflow in Year 0 and $40,000 is a cash inflow in Year 5. The Year 0 outflow is not discounted, and the Year 5 inflow is discounted using the PV of $1 factor for 12% for 5 years. Then the two amounts are netted together. Year 0: $(40,000) × 1.000 = $(40,000) Year 5: $40,000 × .567 = $22,680 The overall impact on the NPV analysis is thus $(40,000) + $22,680, which is $(17,320). This is the amount by which the project's NPV is reduced by the impact of the working capital investment.
This is the net overall impact of the working capital investment on the NPV multiplied by .6 to calculate an after-tax value. The working capital increase and the subsequent release of the working capital at the end of the project are not income items, so they are not subject to income tax.
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