NPV: taxation, working capital, inflation - part 3

In this lesson

1. 0:00 Integrating NPV components together
2. 0:50 Asset investment and disposal proceeds
3. 1:11 Tax allowable depreciation benefits
4. 1:33 Working capital movements explained
5. 2:05 Calculating NPV with discount factors
6. 2:45 Worked example: three-year project appraisal
7. 3:32 Applying discount factors to cash flows

About this lesson

You'll see how operating cash flows, tax payments, capital investments, depreciation tax shields, and working capital movements all combine in a single model, then apply this to a practical example using discount factors to evaluate project viability. This integrated approach is essential for FM, AFM, and SBL papers, where real-world investment decisions require you to handle several moving parts at once. The video walks through a full worked example showing how to structure each cash flow line systematically. You'll learn to build your calculation from the top down: starting with operating cash flows and tax outflows, then accounting for initial asset investment and disposal proceeds, adding tax savings from depreciation allowances, and managing working capital movements across the project lifecycle. A quick check—ensuring your working capital row totals zero—helps you catch errors before calculating your final NPV. Finally, you'll work through a straightforward three-year project appraisal, applying discount factors at the company's cost of capital to determine whether the investment should be accepted. This demonstrates the core principle: if NPV is positive, the project increases business value and shareholder wealth. By the end, you'll feel confident tackling multi-layered NPV questions that test your ability to juggle several cash flow components under pressure.

Duration: 5m