ACCA MA · Chapter 11 · Question 10 of 10
Which of the following should be excluded from the cash flows in an NPV appraisal of a new machine?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) Depreciation charged on the new machine
Explanation
NPV uses relevant future cash flows only. Depreciation is a non-cash accounting charge; the cash cost of the machine is already included as the initial outlay. Working capital, scrap proceeds and extra (incremental) fixed costs are all relevant cash flows.
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