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How to treat depreciation and depreciation allowance in investment appraisal
Van Equipment cost 250,000
Useful life is 5 years weighted average cost of capital is calculated at 8%
Depreciation on straight-line methodThe salvage value of the vans after five years is estimated to be 25%
of their total costExpense on the company’s income statement is calculated at 20% of the annual depreciation allowance
No tax or inflation ratesDepreciation is always completely irrelevant in DCF investment appraisal question because it is not a cash flow.
You have asked this in the Paper AFM forum, but it is really a very basic Paper MA example. In Paper AFM there will always be both tax and inflation (and much more information to deal with).
I do suggest that you watch my free lectures on this, and it would be best to watch my Paper MA lectures on investment appraisal first.
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