Dear Team , Please Refer , Question number 20 part -i , April 2010 question paper of UK actuary ,where i have solved the capital budgeting sum , by taken into consideration the depreciation of Machine., first i have deducted depreciation and then added back to get the final NPV value. but in solution i don't know why depreciation is not taken into consideration while solving the sum. please clarify Suresh sharma
Hi - The NPV calculation is concerned with cashflows. As depreciation is not a cashflow we must ignore it - instead we allow for the full cost of the machine when the cashflow for it is incurred.
