NPV Assumptions
Student J asked us:
NPV works on cash flow - which isn't the same as profit. Depreciation isn't cash in or out of the firm. It is a book adjustment and so not relevant for NPV. Plus - we didn't give any depreciation rates - so that's a clue that they're not needed.
You should calculate the discount factor using the interest rate given in the case study and applying it to the formula in the Studypack - as we did in class.
I'm currently attempting to do question 1 in the 2nd coursework of mast 3001, and I understand NPV must be calculated. However, I'm "stuck" as to whether we have to assume Depreciation and Discount factors in the calculations? Or work NPV out with what we've been given in the coursework booklet.
NPV works on cash flow - which isn't the same as profit. Depreciation isn't cash in or out of the firm. It is a book adjustment and so not relevant for NPV. Plus - we didn't give any depreciation rates - so that's a clue that they're not needed.
You should calculate the discount factor using the interest rate given in the case study and applying it to the formula in the Studypack - as we did in class.
posted by SuperJane at
08:09
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