initial capital treatment in NPV

This topic has 5 replies, 4 voices, and was last updated 12 years ago by John Moffat.

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September 4, 2013 at 3:10 pm #139826
griffith
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Can you please indicate to me ,how the initial capital treatment should be accounted for in a NPV question. Should it deducted in the first year or the last year of investment?
September 4, 2013 at 4:03 pm #139831
latoyah
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its not deducted then, you put it at yr 0 and its calculated against the pv of the life of the investment. maybe you are thinking of working capital which maybe stated that full amount be realised in the last yr of investment. but investment is always at yr zero.
September 4, 2013 at 4:04 pm #139833
latoyah
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my suggestion is to go back through John’s lecture on it and you will see.
September 9, 2013 at 1:10 am #140127
griffith
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Thank you Latoyah.
September 9, 2013 at 1:56 pm #140178
neilsolaris
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I think the treatment of capital investments and working capital are similar. They are both deducted at the present time (time 0). If there is any resale value of the capital investment it can be added on at the end. Similarly, working capital can also be added on at the end, as it is no longer needed.
September 9, 2013 at 3:10 pm #140185
John Moffat
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True, although the tax effect is different.
Also, there may sometimes be more working capital required during the life of the project.
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