Net present value (npv), Financial Management

Net Present Value (NPV) :

In this technique, future cash flows are discounted to the present and then compared with the investment outlay. The basic discount rate is generally the cost of capital to the enterprise.  For ranking the projects along with this procedure, the NPVs of several another projects are compared. Project with highest positive NPV or a project with highest NPV is given highest rank.

Accept-Reject Rule:

In the case of independent projects, if the present value of cash inflows of a project is higher than the present value of investment outlay of the project, it should be accepted. if not, it should be rejected. In the case of equally exclusive projects, a project with highest NPV should be accepted.

Advantages:

  • Where a company has many mutually exclusive projects in hand, this method assists the management to choose the most profitable one.
  • It is simple to catch

Disadvantages:

  • It does not take into consideration the magnitude of the investment outlay and net cash benefits together.
Posted Date: 10/15/2012 9:24:20 AM | Location : United States







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

Write discussion on Net present value (npv)
Your posts are moderated
Related Questions
Normally, the cash flows from mortgage backed and assets-backed securities are obtained on monthly basis. Therefore, the yield calculated would be on a monthly ba

A revenue bond is a special type of municipal bond distinguished by its guarantee of repayment from revenues generated by a specifie

How would you explain transaction exposure? How is it different from economic exposure? Answer:Transaction exposure is the sensitivity of comprehend domestic currency values of

R eceipt of bids and bid opening We discussed how to prepare the bids and to publish them in the earlier sub section. Now let us see how to receive and open bids. To receiv

Cash flow from investing activities The items included in this heading are: Cash payments Cash receipts Acquiring proper

Deficiency in Design - This exists when a control essential to meet the control objective is missing or an existing control isn't properly designed so that even if control operates

1. Suppose a firm's tax rate is 35%. What affect would a $10 million operating expense have on this year's earnings?  What effect would it have on next year's earnings? 2. What

Mathematical Property The sum of the deviations of the items from median, ignoring signs, is the least. For example, the median of 6, 10, 14, 18 and 22 is 14. The deviations fr

Forms of Liquidity: Definition: Liquidity defines to how quickly and cheaply an asset will be converted into cash. Money (in the form of cash) is the most liquid asset. Assets

Q. Show Factors influencing participation? Factors influencing participation: several research studies have shown that the intensity of participation depends on four factors.