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.


  • 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


  • 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
Q. Show Function of the Financial decision? Financial decision: the second major decision is involved in financial management is the financial decision the investment decision

Why might it be very simple for an investor desiring to diversify his portfolio internationally to buy depository receipts as compared to the actual shares of the company? Answ

How are financial trades made on an organized exchange? Every exchange-listed security is traded at a precise location on the trading floor called the post. The trading is mana

CLASSIFICATION OF SOURCES OF FINANCE In the market, there are several sources of finance, with conflicting risk characteristics and with conflicting cost structures. Numerous m

Explain the factors affecting the choice of a minimum cash balance amount. The smallest cash balance amount is determined by how easy it is to raise funds when needed, how expe

Types of FRNs In an era of innovations, while changing needs and preferences of the investors trigger introduction of newer FRNs, the borrowers' funding specifications also nec

d iscuss the relationship between finance management,economics,accounting, and mathematics. illustrate/show through a venn diagram

State the term- Pass Through Certificates (PTCs) Pass through Certificates (PTCs) are debt securities which pass through income from debtors through intermediaries to investors

Jack needs to borrow $1,000 for the next year. Bank South will give him the loan at 9 percent. Suncoast bank will give him the loan at 7 percent with a $50 loan origination fee. Fi

Q. Explain Accept-Reject Criteria? Accept-Reject Criteria:- If actual ARR is elevated than the predetermined rate of return .......................Project would be accep