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    Question

    While evaluating investments, the release of working capital at the end of the project life should be considered as __________.

    A Cash inflow Correct Answer Incorrect Answer
    B Cash outflow Correct Answer Incorrect Answer
    C both, Cash outflow and no effect upon capital budgeting decision Correct Answer Incorrect Answer
    D no effect upon capital budgeting decision Correct Answer Incorrect Answer

    Solution

    While evaluating investments, the release of working capital at the end of the project life should be considered as Cash inflow. Working capital represents the funds required to finance the day-to-day operations of a business. During the project life, investments in working capital may tie up funds, resulting in a cash outflow. However, at the end of the project life, if the working capital is released or recovered, it leads to a cash inflow. This cash inflow should be factored into the evaluation of the investment project since it represents a return of funds that were initially invested in working capital. Including this cash inflow helps in making a more accurate assessment of the project's overall cash flows and profitability.

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