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So there is a question bpp kit (mocks)
We have to calculate present value of the maintainance costs, i just wanted to know if it would’ve asked for net present value first we would calculate the present value of all the cash inflows and then deducting them from the cash outflows to get net present value, but since it’s only asking for present value that means we are only going to calculate the value of cash inflows being earned right sir?
No. The net present value is the present value of all the future flows less the initial outflow.
If the ask for the present value of the maintenance costs then it is simply the total of the discounted maintenance costs.
Yes sir but the amount is same every year for five years so they’ve simply calculated annuity factor and multiplied with that amount to get the total amount and that is the present value, if they would’ve asked for npv we would’ve simply deducted that discounted value from initial out flow to get net present value right sir?
That is what I wrote in my previous reply. Obviously if the cash flows are of an equal amount it makes sense to use the annuity factor rather than discount each flow separately.
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