I'm calculating the NPV for a project, the project has an investment now and an investment in 12 months, it says the production will start in 12 months and once the production starts the project will last 7 years, does this mean that NPV needs to be calculated for 8 years instead of 7 years? please advise
2 Answers
That's how I read it - the last cash flow will be 8 years from today, 7 years from the start of production in one year. (I'm assuming that the cash inflow from the "production" is counted at the end of the year)
So you should have two cash outflows for the first two years (0 and 1), then 7 cash inflows for years 2-8).
Again, that's my interpretation of the question. If this is a school assignment double-check with your teacher.
answered Dec 13, 2023 at 15:10
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In the case you buying equipment to run the project? is the depreciation accounted for 7 years or 8 years to calculate the operation cash? Commented Dec 13, 2023 at 15:23
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1Depreciation is a non-cash expense and is typically not counted in NPV (except when calculating the terminal value if the intent is to resell it at the end). It's not clear from the problem exactly what is depreciating and for how long. Commented Dec 13, 2023 at 17:03
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@user126611 what depreciation are you talking about? as you don't mention any depreciable assets depreciation is 0– MD-TechCommented Dec 13, 2023 at 21:01
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@MD-Tech Depreciation is not 0. The total cost of investment should be depreciated using SLM.– UtkarshCommented Jan 14 at 6:02
So you invest at the beginning(lets say year 0). Then you invest after 12 months(1 year). That's year 1. Production starts now and the project continues for 7 years. So that would be from year 1 to 7. Therefore total years = 8 (including year 0).
