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Sir, in case of NPV calculations if the scrap value of the machine is given what is to be done with it?
Also, in case it is said that the machinery is depreciated what would we do?
Depreciation is not relevant because it is not a cash flow.
The scrap value is a cash inflow in the year of sale and is therefore included in the cash flows.
I explain this in my free lectures on investment appraisal.
So if the scarp value say at the end of 4 years is 20,000 we would multiply this value with the discounting factor for 4 years?
And if we are told to find the payback period of a machine that has been subjected to straight line depreciated through it’s life, do we add back the depreciated value back to the profit of each year?
Yes, you would discount the scrap for 4 years.
Yes. If you are given the profits after depreciation then you need to add back the depreciation in order to get the cash flows, because the payback period is a cash based measure.
Again, have you watched my free lectures on investment appraisal?
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