Hi, I had a small confusion and just wanted to confirm with u guys. Do we include the NWC (which we recover later) cost in the initial investment while calculating NPV??? While doing some problems, NWC was included but somewhere else,it was not.They only included purchase cost and installation cost. Thanks
You definitely include it in the beginning, and remove it at the end. That is provided the NWC required is provided to you.
yes, it needs to include at the beinnging of investment and free up in the end.
you need to include in the outlay… Then if the project is like 5 years long, in the 5th year you need to add it to the 5th years cash flow. So if all of your after tax cash flows are the same, your 5th year will be different. Example: After tax cash flows will be 50,000 for 5 yrs, Initial investment is 200,000, NWC is 20,000. Inital outlay = 220,000 CF1 - 50,000 CF2 - 50,000 CF3 - 50,000 CF4 - 50,000 CF5 - 70,000 [also add in any gain from sale of the asset * (1-t) to 5th yr CF]