Capital budgeting, FM

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Guest

Guest (Querist)

24 October 2010 I have 2 doubts:
1)Why do we not do 'net of tax' to salvage value?
2)In questions of NPV, if there is additional investment made at the end of, say, the 5th year, then do we discount it with PV of 5th year or the 6th year?
According to me, it should be 6th year but the answer was 5th year so I'm confused.

Thanks a lot in advance.

CA Shailesh Kumar Bhagat online

CA Shailesh Kumar Bhagat online

(Expert)
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25 October 2010 salvage value is part of capital cost , we all ready taking the full deprectaion tax benefit of capital cost , so i donnot think to take tax benefit twicely.

Secondly , 5 th year investment means, investment in the beginning of 6 th year. 5th year last and 6th year beginning PV will be same, so it should be 5th year PV.

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Guest

Guest (Querist)

25 October 2010 1) Yes, what you said is right. In other words, it can be explained as : we dont credit or debit salvage value in the P&L Account,(we credit it in the Asset Account), so we dont get tax benefit.

2) Yes I understood this one also. An additional investment at the end of 5 years would have to be discounted for 5 yrs. So therefore, PV of 5th yr.

Thanks

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