Explain net present value method, Financial Management

Q. Explain Net Present Value Method?

Net Present Value (NPV) Method: - This process measures the Present value of returns per rupee invested. In this method present value of Institute of IT & Management cash outflows and cash inflows is computed and the present value of cash outflow is subtracted from the present value of cash inflows. The difference is described as NPV.

NPV= PV of Inflow - PV of Outflow

OR

NPV = [(Cash inflow in 1st year x PVF 1) + (Cash inflow in 2nd year x PVF 2) + (Cash

inflow in 3rdyear x PVF 3) +-----------(Cash inflow in nth year XPVFn)] - [Initial cash outflow X PVF 0]

PVF1 = Present Value Factor in 1st year

PVF2 = Present value factor in 2nd year and so on.

If PVF is not given, we may calculate NPV as follows:

OR

NPV = [Cash inflow in 1st year X 1/(1+r)1 ] + [Cash inflow in 2nd year X 1/(1+r) 2] +

[Cash inflow in 3rd year X 1/(1+r)3 ] +--------[Cash inflow in nth year X 1/(1+r)n ] - [Initial Cash outflow X 1/(1+r)0]

Accept-Reject Criteria:-

  • If NPV is positive the project possibly accepted
  • If NPV is negative the project mayn't be accepted.
  • If NPV is zero the project may be accepted merely if non-financial benefits are there.
Posted Date: 8/3/2013 4:09:15 AM | Location : United States







Related Discussions:- Explain net present value method, Assignment Help, Ask Question on Explain net present value method, Get Answer, Expert's Help, Explain net present value method Discussions

Write discussion on Explain net present value method
Your posts are moderated
Related Questions
how do we get the pvif of a perpetuity

credit limit decision bajaj electronics company

Why do financial managers calculate the marginal tax rate? Financial managers make use of marginal tax rates to estimate the future after-tax cash flows from investments. As th

Operating profit margin Operating profit margin    =   (PBIT / Turnover) x 100% This is the ratio of operating profit to turnover or sales. A high operating profit margin is

Q. Show the Current Liabilities Method? Forecasting of Current Assets as well as Current Liabilities Method: - As-per to this method an estimate is made of forthcoming period's

Q. What is the significance of Working Capital? Meaning of Working Capital: - Working capital management is an significant aspect of financial management. In business money is

Evaluation of change in credit policy Current average collection period = 30 + 10 = 40 days Current accounts receivable = 6m × 40/ 365 = $657534 The Average collection pe

Relate the concept of lost sales to the definition of incremental cash flow. While a new capital project is take on it may compete with an existing project or projects, causing t

Q. Consequence of the cash operating cycle? The cash operating cycle is the length of time among paying trade payables and receiving cash from receivables. It is able to be cal

This assignment is an analysis of a US publicly-traded company; its common stock could be a prospective investment.  The report is due in Week 10, in needs to be at least 5 pages,