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)]= $150,000Why 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.

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

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.

A CFA Level 2 Discussion About Cash Flows For A Replacement Project

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This topic has 2 replies, 3 voices, and was last updated Dec-202:50 pm by JK311.

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- andynyk
  Participant
  09 Dec 2020 at 2:45 pm
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  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.
- JK311
  Participant
  12 Dec 2020 at 2:50 pm
  Up
  3
  ::
  Because only incremental cashflows are considered in the project appraisal process.
- cfachris
  Participant
  - CFA Level 3
  10 Dec 2020 at 9:27 am
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  2
  ::
  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.
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