Initial working capital for seasonal products—typical percentage Most plants start with 10–20% working capital. For seasonal products, this may rise to approximately what percentage of total capital investment?

Introduction / Context:
Working capital needs are higher for seasonal products because inventories and receivables swing widely across the year. Correctly budgeting this prevents cash crunches during peak production or slow sales months.

Given Data / Assumptions:

• Baseline plants often use 10–20% of total capital investment for initial working capital.
• Seasonality forces larger inventories and delayed collections.
• Rule-of-thumb ranges are acceptable for exam purposes.

Concept / Approach:
For strongly seasonal products (e.g., fertilizers, beverages, construction materials), industry heuristics place initial working capital near 50% of total capital investment to cover off-season accumulation and on-season receivables. While actual values depend on turns and credit terms, 50% is a standard exam benchmark.

Step-by-Step Solution:

Verification / Alternative check:
Feasibility reports for seasonal businesses commonly allocate much higher working capital than continuous, steady-demand plants; 50% is often quoted in standard references.

Why Other Options Are Wrong:

• 30%: may be insufficient for strong seasonality.
• 75% and 95%: unusually high and likely uneconomic for most projects.

Common Pitfalls:
Underestimating credit days to distributors and retailers during peak sales, which can double cash requirements temporarily.

Final Answer:
50