Question

Given the Opportunity cost $10000, Synergy gain 5000, Erosion cost 3000,
working capital additional cash 12000, disposable capital saving 7000,
depreciation saving 8000, sunk cost 18000

If the project NPV before accounting for these changes is -2000 how
these changes may or may not affect the project decision.

Answer 1

Costs incurred for NPV of the project = Opportunity Cost + Erosion Cost + Working Capital Cash + Sunk Cost = 10000 + 3000 + 12000+ 18000 = 43,000

Savings that will arise = Synergy Gain + Disposable Capital Saving + Depreciation Saving = 5000 + 7000 + 8000 = 20000

NPV after accounting these decisions = NPV - Costs + Savings = -2000 -43,000 + 20000 = -25,000

Hence, after these accounting for these decisions, the NPV of the project is not affected and it still should not be accepted.