Hi, can anyone explain me why in the formula
(total cash flows – depreciation) / project life
scrap value is added? I would rather deducted it? Any ideas why money which are going to be received at the and of project are added to the initial investment with are outflows?
to get the average capital investment u need to add scrap value.
the scrap value means at the end of the project, the value of the investment . using the openning figure and closing figur you will get the average investment during the whole life of the project.
ARR is added to the initial investments because it is an opportunity cost
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