The depreciation taken on the asset in future periods is not a cash flow and is not included in the NPV and IRR calculations. However, there is a cash benefit related to depreciation (often called a depreciation tax shield) since income taxes paid are reduced as a result of recording depreciation expense.

What is included in NPV?

Net present value is the difference between the present value of the incoming cash flows and the present value of the outgoing cash flows. Working capital is the difference between a company's current assets and its current liabilities. Working capital is included when calculating net present value (NPV).

What is excluded from NPV?

1 Revenue and costs. ... Costs may also contain apportioned overheads from head office. These are relevant for a profit analysis but should be stripped out of an NPV analysis if they are not cash flows. 3 Depreciation. This is not a cash flow and should be excluded from an NPV analysis.