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Probably a stupid question but if a machine is purchased in the first month of the first year of operation why is it deemed to be Yr0 for NPV purposes?
Hi @dcurrie
I would say, that it is because it isn’t material for these calculations.
Say, accountant makes calculations at December 2013, and company will purchase machine in 15th January 2014. To calculate present value of this event you need to take only 1/24th of annual interest…Year 0 means now, or at the very beginning of the project. The relevance is that you do not need to discount anything that happens now, as it is at the present time already. When I enter the discount factors, I enter a “1” for year 0, which obviously has no effect on the value when multiplied with it.
I should add for exam purposes, I understand that things will never happen mid year. So if it says they acquired a machine half-way through the first month, assume they bought it at the beginning of the year (i.e. year 0).
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