Final answer:
The recovery of working capital in the terminal year of a project's life should be included in the capital because it affects the overall profitability of the project and the ability to repay any outstanding debts.
Step-by-step explanation:
Working capital refers to the funds used to cover daily operational expenses and is an important determinant of a firm's financial health and ability to meet short-term obligations. In the terminal year, if a project generates excess working capital, it can be used to repay any borrowed funds or invest in future projects.
On the other hand, if the project's working capital falls short, it may require additional capital infusion or result in financial distress. Including the recovery of working capital in the capital helps to accurately assess the project's financial viability and ensure proper allocation of resources.