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should i include the development and research cost in the investment appraisal calculation and if have pattern of subscription should we calculate the amortization as well ?
First usually r & d costs are generally considered sunk costs and are typically not included in the cash flow calculations for the appraisal.
However, if R&D costs are capitalised, they may be included in the initial capital investment figure but unlikely.
Therefore, the treatment of R&D costs can vary based on the specific context and accounting policies applied.
Second question where have you seen this in a question?
No you won’t get asked is my answer
Hope this helpsthank you that was very helpful,
i have other questions
just to understand if i have capital investment figure and research and development cost which is not included in the initial figure. should i add it or not ?what about marketing and training cost ?
Actually that what I’ve got in the exam that i’ve sat on march which i didn’t pass along with the PM exam.
i got weak percentage in the investment appraisal syllabus that mean this question was wrong since i add the R & D to the initial investmentMarketing and training costs are typically considered operating expenses and should not be included in the initial capital investment when calculating NPV. Instead, they are treated as part of the ongoing operational costs of the project.
Focus on including only the incremental cash flows that directly relate to the investment when performing an investment appraisal.
So in summary
Generally, R&D costs are considered sunk costs and should not be included in the NPV calculation unless they are capitalised.
Annual fixed maintenance costs should be included if they are incremental and directly related to the project. If they are existing costs that do not change due to the project, they should not be included.
Variable should be included as they represent costs that will change with the level of production or sales related to the project.
Only incremental fixed costs that arise as a direct result of the project should be included. Existing fixed costs that do not change should generally be excluded.With regards to failing on a NPV question there must have been more areas you struggled with?
So decide what you are going to do:
I don’t know the exam question so…..I am trying to provide adviceAre you sure your timings were correct?
Did you deal with tax correctly, capital allowances and timings?
Did you used the correct discount rate?
Was there working capital in the question? Did you deal with it correctly?
You won’t have failed an exam because of one part of a question ….treatment of R&D for example
I am sorry to saythank you so much, you always help me and give me a good advice,
I need to study it again, it seems that i haven’t quit understanded it, or as you said there must have been something else wrong .
thank you! appreciate your help!
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