Net present value method: npv, finance, Other Engineering

Discounted cash flow methods
Net present value method: NPV
It is one of the classic methods of evaluating the investment project. Here each potential projects value is find out its net present value (NPV). This method considers the time value of money and should that cash flow arising at different time differ in value, hence need to find out its present value (Robert Parrino & David s. Kidwell, 2009).
Steps involved in the calculation NPV:
• Find out the cash inflow from a project based on realistic assumption.
• Determine the appropriate discounted rate.
• Calculate the present value of cash inflow based on discounted rate.
• Net present value is calculated by deducting present value of cash outflow from the present inflow (I.M. Pandey, 2005).
Accept Reject rule:
Accept the project if NPV is positive NPV>0
Reject the project if NPV is negative NPV<0 (Robert Parrino & David s. Kidwell, 2009).
Merits of NPV:
• The value of money is considered.
• NPV considers cash flow occurring in the life of the project to calculate its worth.
• This method considers discounting rate to calculate present value of cash flow.
• This method considers the objective of maximizing shareholders wealth (I.M. Pandey, 2005).
Demerits to NPV:
• Difficult to forecast future cash flow as future is uncertain.
• If right discount rate is not considered then it leads to wrong investment decisions.
• It is not suitable when alternative projects with unequal lives exist (I.M. Pandey, 2005).
Posted Date: 2/6/2012 10:32:50 PM | Location : United States







Related Discussions:- Net present value method: npv, finance, Assignment Help, Ask Question on Net present value method: npv, finance, Get Answer, Expert's Help, Net present value method: npv, finance Discussions

Write discussion on Net present value method: npv, finance
Your posts are moderated
Related Questions
Process of fire risk assessment: In the UK, the process for  the FRA came out of the process for a general risk assessment. In a general risk assessment hazards are identif

suggestion regarding credit limit. should it be approved or not what should be the amount of

A charitable organization wants to design a special ATM machine to be used by needy people. The association supplies the needy person with a pin number to be able to use the ATM

Create an excel spreadsheet estimating NPV of an MBA

Disadvantage of shunt diode clipper

determine forces in each member of equilqteral truss

what will be the methodology to calculate pitching moment damping coefficient of canrad of aircraft

Installing FLUENT on a MWS machine Fluent was originally developed on unix and graphical output was provided by calls to the X Windows graphics system For this reason provided by c


how does the Ip message finally reassemble?