CIMA BA2 · Chapter 12 · Question 10 of 13
Which of the following should be EXCLUDED from the cash flows used in a net present value calculation?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) Depreciation of the new equipment
Explanation
NPV uses relevant cash flows. Depreciation is a non-cash accounting allocation of the asset's cost; the cost itself is already included as the initial cash outflow. Working capital invested (and later released), scrap proceeds and incremental fixed costs are all relevant cash flows.
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