CFA CFA Level 2 Cash Flows for a Replacement Project

Cash Flows for a Replacement Project

  • This topic has 2 replies, 3 voices, and was last updated Dec-20 by JK311.
  • Author
    Posts
    • andynyk
      Participant
      Up
      8
      Down

      From the example in p.35 of the CFA level II note,

      TNOCF = SalT + NWCInv – T(SalT – BT)

      = (200,000 – 100,000) + 80,000 – 0.30[(200,000 – 100,000) – (0 – 0)]

      = $150,000

      Why does it consider the SalT and BT of the old equipment? It should be sold and replaced by a new equipment at T=0.

      Thanks.

    • cfachris
      Participant
      Up
      2
      Down

      Hi @andynyk , I no longer have the L2 notes, so if you can give more background to the question that would help. And the notation as well, so we can have a go.

    • JK311
      Participant
      Up
      3
      Down

      Because only incremental cashflows are considered in the project appraisal process.

Viewing 2 reply threads
  • You must be logged in to reply to this topic.