NPV: taxation, working capital, inflation - part 1

In this lesson

1. 0:00 NPV complications: taxation, working capital, inflation
2. 0:31 Project appraisal fundamentals and financial viability
3. 0:52 How taxation impacts NPV calculations
4. 2:15 Understanding tax allowable depreciation
5. 3:25 Operating cash flows and tax payments worked example
6. 5:18 Tax allowable depreciation calculation method
7. 7:00 Balancing allowances and balancing charges explained
8. 8:20 Machinery depreciation: four-year project example
9. 13:03 Tax savings from depreciation: cash flow impact
10. 14:41 Year two tax savings: multiple choice worked example

About this lesson

The video focuses on two key ways taxation impacts NPV: tax on operating profits and tax allowable depreciation. You'll see how to calculate tax cash flows from operating profits, then work through the mechanics of claiming tax allowable depreciation on non-current assets using the reducing balance method. The video walks you through a practical example of machinery purchase, showing how to track the tax written down value year by year and calculate the tax savings that arise from depreciation claims. You'll also learn about balancing allowances and balancing charges—the tax adjustments that occur when you dispose of an asset at the end of a project. By the end of part 1, you'll be confident calculating the tax impact on your NPV, understanding how depreciation reduces your tax bill, and recognising when a disposal creates either a tax saving or an additional tax cost. This foundation prepares you for more complex scenarios involving working capital and inflation in part 2.

Duration: 18m