- This topic has 1 reply, 2 voices, and was last updated 10 years ago by
.
- Posts
Dear P3 Tutor
I have to get the NPV concepts clear before answering questions on P3 Section B. We learn NPV principle in F9 that all sunk costs and Fixed OH are irrelevant cost therefore it must not take into NPV computation. Now we have something call intangible benefits do we have to take into NPV for project evaluation?
They could only be brought into an NPV calculation if their effect on cash flows could be estimated.
For example, a new IT system might be easier to operate and employees’ morale might rise (intangible). You would then have to work out costs saved because of additional productivity and lower staff turnover. That would require a lot of guesswork and any NPV would have to be looked at even more skeptically than normal.
It would be more likely that you would use ‘hard’ cash flow estimates and than when you see the NPV say that we need to judge this in the light of possible intangible benefits that have not bee taken into account.
- You must be logged in to reply to this topic.