Treat working capital, replacement and endings as dated consequences

Working capital often has to be provided before the sales it supports. Establish the required inventory, credit sales and supplier terms, then forecast balances and their cash movements through FIN.4. For each alternative, calculate the change over time; only afterward take the difference between alternatives. A continuing increase in sales can require continuing investment in receivables and inventory, so a cash margin alone does not represent all money distributable.

At startup, distinguish amounts already tied up under the baseline from extra amounts caused by the project. At shutdown, model the actual collection and settlement process. Recovering inventory, receivables and deposits can take several periods and incur losses or tax. Settling payables and closure obligations can require cash after sales stop. A terminal line equal to the opening working-capital investment is justified only when that amount is actually recoverable under the case conditions.

A replacement decision includes the old asset’s attainable continuation and the new asset’s installation, service and disposal consequences. The old purchase cost is sunk, but sale proceeds, a changed tax payment, avoided maintenance or remaining service can matter now. An accounting write-off alone is not a cash payment; its actual tax or contractual effects may be. FIN.9 compares unequal service lives and available replacements when those choices are live.

When operations continue beyond the explicit forecast, value the continuing activity through FIN.7. That activity must retain the capital and working capital needed for its cash production. A liquidation recovery and a going-concern terminal value are alternative treatments of the same resources unless the valued activity explicitly excludes the assets being sold. Make the boundary clear before adding either amount.