Our business is looking to acquire some machinery costing circa £550k. This will allow us to vertically integrate our supply chain and achieve an improved margin, and thus annual savings on our existing supply.
I would like to represent all of this in a NPV calculation. However, within the £550k we would anticipate this to be funded by an asset lender, with perhaps a £100k deposit from our own cash flow.
I am currently stuck on how best to present this. Part of me thinks I should only account for the £100k cash outflow in Year 0 and then show financing repayments and annual savings each year thereafter, for say a 5 year period. However, I also believe I need to show the full cost of the investment in Year 0 and then reflect the cost of financing in the discount factor for each year as clearly showing the full cost of investment and then financing repayment is double counting.
The latter doesn’t sit right with me as it should be purely based on cash flows and clearly we are not paying out £550k in full at the outset.
Would appreciate any sensible advice on how best to present this?