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
BURLEY PLC Financial desirability In a real-terms analysis the real rate of return necessary by shareholders has to be used. This is found as follows 1 nominal rate/1 i

What are the benefits of the JIT inventory control system? The just-in-time that is abbreviated as JIT inventory control system lowers inventory carrying costs and tends to inc

discuss the applicability of operating cycle and any other financial knowledge to poultry business in uganda

Assignment II Describe capital budgeting techniques with formulas and examples.

What is the Tolerable error In addition to looking at material differences individually the auditor must list all the differences (material or not) and consider in total wheth

Suppose the bid-ask spot prices for one British pound are $1.50 and $1.60 respectively. 1. Compute the bid-ask prices for one US dollar in terms of British pound. 2. Suppose

Under what circumstance would the U.S. dollar and the Canadian dollar be said to have achieved purchasing power parity? The U.S. dollar and the Canadian dollar possible conside

Market mechanism: Market mechanism is a term from economics denoting to the use of money exchanged by sellers and buyers with an open and understood system of time and value t

A 16% debenture of R5 000 is redeemable at a premium of 10% after 5 years. The fair rate of return on similar debentures is 14% before tax. Calculate the present value of the capit

How competitive is the market for banking services? A: With above 7,000 banks and thrifts in the U.S., banking is one of the so many competitive industries in the world. Refer