Question

Q1. In the NPV computations, we see something called working capital. What is working capital? Why do we consider it in the NPV computations?

Q2. Many companies have outsourced customer service and/or call centers. Locations these services are now provided range from somewhere in the United States to foreign countries where wages are lower. What is your opinion on how quality has been, perhaps, compromised by this move?

Q3. Comment on the benefits and drawbacks of discounted versus nondiscounted methods

Answer 1

1) Working Capital is the difference between the current assets and current liabilities

                               = Current Assets - Current liabilities

we consider working capital in the calculation of the Net present value because the cash flows from the project for which NPV is to be calculated must meet yearly requirements(expenses) for the project

3) Benifits on Discounted versus undiscounted:

      Disounting represents converting the future cash flows to the present value or vice versa

      It represents correctness of the expenditure on the project at the present date.

      Helps in decision making

     Helps in selectng the betweem projects

Drawbacks:

    The rate of return that is used to convert the future to present cash flows cannot be known exactly is based on the estimates