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I'm confused if we have to minus and add back depreciation when calculating NPV? If the incremental cash inflows are $1million (say) per annum, do we have to subtract depreciation first before calculating the tax and add back the depreciation afterward? Also, will the tax saving be somehow affected by this? If you refer to the table below (taken from 'Financial Management of Health Care Organizations: An Introduction to Fundamental Tools, Concepts, and Applications'), depreciation is added back. However, if you refer to the link provided below, I've noted that in some examples, depreciation is not added back when calculating Total Cash Flow, but depreciation is added back when calculating After-Tax Cash Flow, but both are finding NPV, what exactly are the differences? Exhibit 7-5 Computation of Net Present Value for the Satellite Clinic Givens: Years 1 Initial investment ($1,000,000) 2 Net Revenue $400,000 3 Cash Operating Expense $200,000 + Annual Depreciation $145,000 5 Salvage value (end of year 6) 6 Cost of Capital 10% $550,000 $300,000 $145,000 $800,000 5500,000 $145,000 $900,000 $550,000 $145,000 $1,100,000 $650,000 $145,000 $1,370,000 S850,000 $145,000 $130,000 Years A Initial Investment [Given 1] ($1,000,000) B Net Revenue Given 2 $400,000 $550,000 $800,000 $900,000 $1,100,000 $1,370,000 C Less: Cash Operating Expenses [Given 3] $200,000 $300,000 $500,000 S550,000 $650,000 $850,000 D Less: Depreciation Expense [Given 41 $145,000 $145,000 $145,000 $145,000 $145,000 $145,000 E Net Operating Income [B-C-D] 55,000 105,000 155,000 205,000 305,000 375,000 F Add: Depreciation Expense (Given 41 145,000 145,000 145,000 145,000 145,000 145,000 G Net Operating Cash Flows CE +F 200,000 250,000 300,000 350,000 450,000 520,000 H Add: Sale of Salvage Value (Given 5] 130.000 I Project Cash Flows 1G +H] $200.000 $250,000 $300,000 $350,000 $450,000 S650,000 J Cost of Capital [Given 6] 10% 10% 10% 10% 10 10% K Present Value Interest Factors 1/(1 + i) 09001 0.8264 0.7513 0.6830 0.6209 0.5645 L Annual PV of Cash Flows! 1 x K) $181,818 $206,612 $225,394 $239,055 $279,415 $366,908 MPV of Cash Flows (Sum LD $1,499,202 Net Present Value [A + M S 499,202 Present Value Interest Factors in the exhibit have been calculated by formula, but are necessarily rounded for presentation. Therefore, there may be a difference between the number displayed and that calculated manually