[Anonymous]

Becker talks about additional working capital requirements (e.g., if you purchase an airplane you have to buy additional supplies to service it), but I can’t figure out of those are included in the depreciable base like you do with shipping, installation and training on the asset. I’m looking specifically at the example on BEC 3-8 and the info leading up to it on BEC 3-5 through 3-7. Any ideas?

[Anonymous]

I don't depreciate the additional working Capital when it is added. In contrast, you do include it in the present value calculation. It is added to the net inital outflow and added back in the final year as an inflow net of taxes discounted back using the appropriate PV Factor.

On page B3 – 8 There is no increase in Working Capital only the shipping , installation, and investment itself which are all added together and depreciated. When WC requirements increase think of it as added expenses of the little things like inventory, payroll, etc. Stuff that isn't depreciated.

[Anonymous]

Dutkas – thanks for the reply. My confusion came in becuase the discussion on the pages prior to B3-8 talked about additional working capital but the example didn't address it so I wasn't sure what to do with it.

[Anonymous]

No problem, your test schedule looks very similar to mine with the exception that started the process May 28th. I would have done that if I haad gotten my NTS sooner post graduation! Good luck this monday! I feel like I could teach a course on BEC at this point.

[I'm, Ron Burgundy?]

DJN

I've posted this exact topic on this forum before. I don't even need to know which question you are talking about because it's so familiar to me. For some reason this was a huge hurdle for me to get over.

Remember it like this:

1. Depreciate the equipment, installation, shipping etc. and multiple the annual amount by the tax rate to figure out the annual depreciation tax shield.

2. Add it to the annual income net of tax.

3. Multiply the result by the PV of an ordinary annuity for the periods/rate stated.

4. Add the original increase in working capital (multiply the original increase w/c amount by the PV of an annuity due) to the number that results from #3 above.

5. Subtract, from the number resulting from step 4, the TOTAL initial outlay and that will give you your NPV.

I hope this helps.

"If you're going through hell, keep going"
- Winston Churchill

"I've missed over 9,000 shots in my career. I've lost over 300 games. 26 times I've been trusted to take the game winning shot, and missed. I've failed, over and over and over again in my life. And that is why, I succeed."
- Michael Jordan

BEC: (54), (72), 80 (losing credit on 02/02/15 - nervous)
AUD: 78
REG: (74), 91
FAR: (71)

[Anonymous]

Jarad – HA! Yes indeed, that's the one!

dutkas – I think the only topic I could effectively teach a BEC class in at this point is how to avoid studying…

[Author]

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