Net present value

If the payback period is 4 years and the cash flows are equal, then the cash flows must be $3,000 per year. So to get the NPV you multiply $3,000 by the 6 year annuity factory at 12%, and subtract the initial outflow of $12,000. Are you watching my free lectures on investment appraisal? The lectures are a complete free course for Paper F2 and cover everything needed to be able to pass the exam well.

I want to know whether or not incremental costs are added to the intial investment cost figure to be deducted from the total discounted cash inflows to arrive at the NVP

All incremental costs are relevant, but they are not added to the initial cost - they are cash outflows in whatever years they occur.

So meaning the incremental costs should be discounted to find their pv values and then totalled to be deducted from the discounted cash inflows to arrive at the NPV?

You could do this (and it would give the correct answer), but quicker is simply to subtract the outflows from the inflows in each year, and then discount the net cash flows.

Thank you Mr. John Moffat

You are welcome :-)