Income Tax

Acquisitions of land, as well as additional working capital, are to be treated as nondepreciable capital investments whose market values at the end of year five are estimated to equal their first costs.

The term "working capital" refers to the funds required for current assets (i.e. other than fixed assets such as equipment, facilities, etc.) that are needed for the startup and support of operational activities. For example, products cannot be made or services delivered without having materials available in inventory. Functions such as maintenance cannot be supported without spare parts, tools, trained personnel, and other resources. Also, cash must be available to pay employee salaries and the other expenses of operation. The amount of working capital needed will vary with the project involved, and some or all of the investment in working capital is usually recovered at the end of a project's life (in the example above, you are to assume that all of the investment in working capital is recovered).