Question

is receiving bank loan for investment and annual bank charges for transactions included in incremental cash...

is receiving bank loan for investment and annual bank charges for transactions included in incremental cash flow and NPV calculations ?

Homework Answers

Answer #1

Incremental Cashflow = Revenues - Expenses - Initial Cost/Investment

So, the amount received from bank loan for investment would be included as a part of the initial cost or the initial investment for the project. It would be subracted / excluded from the Net Income from the Project to give the incremental cashflows. Since, the bank loan is taken particularly for the purpose of investment in the new project, it will be included as part of expense costs to determine incremental cashflows from that project

Net Present Value (NPV) is calculated based on the incremental cashflows. Since, bank loan used for investment and the annual bank charges of the transactions are included in calculating incremental costs, it will also be included for computation of NPV.

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