Please anyone help me with this qus asap. I am having the exam tomorrow. My doubt is why the additional 1m of investment is not considered in NPV calculation ? Thanks in advance.
Hi It's because the question gives a breakdown of the 1m : a returnable deposit of £100,000 on the factory, £200,000 for the first year’s lease, £400,000 for the opening inventory of raw materials and £300,000 for the initial payment for labour. When we then look at the table of figures given, the factory lease (200,000), inventory raw materials (400,000) and (300,000) have already been included. So, we just have the remaining 100,000 of deposit to include, and then all of the 1m will have been included in the NPV. Best wishes for tomorrow Lynn