Net present Cost
donnacardwell
Registered Posts: 7 New contributor 🐸
can anyone help with the meanings of net present value and net present cost?
Thanks :001_smile:
Thanks :001_smile:
0
Comments

Net Present Cost
The total cost of a project (after you have taken account of the time value of money)
For example
http://www.aat.org.uk/other_files/examanswers07/intermediate_and_advanced/ECRquestions.pdf
page 16
Machine A
If costs £800,000 now so that is the present cost of the machine
but it will also cost £365,000 in year 1, £380,000 in year 2 and £405,000 in year 3 to operate.
As the cash will not be paid for these costs until the end of yr1, yr 2 and yr 3 the amounts we will pay are not the value today.
We discouint the amounts using the time between now and the date we will have to pay, and a predetermined discount rate (or interest rate). In this question 14%
So the present value of these payments are: Now year 0 £800,000
 end of yr 1 £320,174 (the discounted £365,000)
 end of yr 2 £292,399
 end yr 3 £2373,363
 This all adds up to a net present cost for machine A of £1,685,936
Sandy
sandy@sandyhood.com
www.sandyhood.com0 
Net Present Value
If you look on page 20 of
http://www.aat.org.uk/other_files/ECRJune06questions.pdf
The example shows a new business idea which has costs and revenues each year. The discounting of future cash flows is similar
............................................Year 0..Year1..Year2....Year3
............................................. £000.. £000 .. £000 ....£000
Capital expenditure ................... 600
Other cash flows:..........................................................
Sales income ...................................... 760..... 920..... 1,060
Operating costs .................................. 456...... 542....... 612
So we have annual cash flows of . (600).. 304....... 378....... 448
To find how much these cashflows are worth now we have to discount them (as we did in the NPC example)
Present values ......................... (600)... 267....... 291....... 302
And if you add up all these present values the total is the Net Present Value: £260,000 (or unrounded £259,912)Sandy
sandy@sandyhood.com
www.sandyhood.com0 
Thanks very much :001_smile:0
Categories
 All Categories
 1.2K Books to buy and sell
 2.3K General discussion
 12.5K For AAT students
 319 NEW! Qualifications 2022
 157 General Qualifications 2022 discussion
 11 AAT Level 2 Certificate in Accounting
 56 AAT Level 3 Diploma in Accounting
 92 AAT Level 4 Diploma in Professional Accounting
 8.8K For accounting professionals
 23 coronavirus (Covid19)
 272 VAT
 92 Software
 274 Tax
 136 Bookkeeping
 7.2K General accounting discussion
 201 AAT member discussion
 3.8K For everyone
 38 AAT news and announcements
 345 Feedback for AAT
 2.8K Chat and offtopic discussion
 582 Job postings
 16 Who can benefit from AAT?
 36 Where can AAT take me?
 42 Getting started with AAT
 26 Finding an AAT training provider
 48 Distance learning and other ways to study AAT
 25 Apprenticeships
 66 AAT membership