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I am unclear as to when to include the initial investment on asset replacement at T0.
in the kaplan text, a worked example does not take the initial expenditure at T0 but the exercise following it does.
Chap 2how the question is posed:
in the worked example: “the project will require expenditure of 0.3m pa to maintain the level of existing assets to be used”
in the exercise: “expenditure of 1.3m pa will be required to replace existing assets which will now be used on the project but are getting to the end of their useful lives. the expenditure will be incurred at the start of each year”
Could u please explain how to interpret ?
Regards
I do not have the Kaplan text, so it is difficult for me to be certain without seeing the whole question.
In the first case it would seem that there is a cash outflow of 0.3M at the end of each year.
In the second case it would seem that there is a cash outflow of 1.3M at the start of each year.
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