- This topic has 3 replies, 2 voices, and was last updated 3 months ago by John Moffat.
- The topic ‘initial investment – NPV’ is closed to new replies.
Hi Sir Good day
I have a question regarding cost to include in initial investment.
Can you please guide if we can include following cost in initial investment appraisal of “Customer database management system”
1. Initial capital outlay.
2.Sales tax on the purchase price recoverable through the Noria tax authorities. – Installation and system testing costs.
3.Staff training on the CDMS.
4.Five-year maintenance and support contract with the supplier.
In future you must ask in the Ask the Tutor Forum if you want me to answer – this forum is for students to help each other.
In NPV questions you include all cash flows on the date when they occur.
So the initial capital outlay is an immediate cash outflow.
Sales tax would only be relevant if the question says there is a delay in recovering it (in which case there would be an initial outflow and then an inflow when it is recovered).
Staff training is an outflow when it is paid for (which might be immediately but it depends on the wording of the question).
The maintenance and support contract will presumably be an amount payable each year in which case it is an outflow each year and not immediate (but again it depends on the wording of the question).
Thanks a lot sir for comprehensive explanation.
Sorry for the silly mistake. I really appreciate your response on student queries.
You are welcome 🙂