Review of Domestic Capital Budgeting The basic net present value equation is NP=∑ CE (1+K)(1+K)0 Where CF=expected incremental after-tax cash flow in year t TV=expected after tax cash flow in year T, including return of net working capital Co=initial investment at inception, K= weighted average cost of capital T=economic life of the project in years McGraw-Hilylrwoin 17-3 Copyright@ 2001 by The McGraw-Hill Companies, Inc. All rightsMcGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 17-3 Review of Domestic Capital Budgeting The basic net present value equation is 0 1 (1 ) (1 ) C K TV K CF NPV T T T t t t − + + + = = Where: CFt = expected incremental after-tax cash flow in year t, TVT = expected after tax cash flow in year T, including return of net working capital, C0 = initial investment at inception, K = weighted average cost of capital. T = economic life of the project in years