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The NPV decision rule needs that a company invest in all projects that have a positive net present value. This presumes that sufficient funds are available for all incremental projects which are only true in a perfect capital market. When inadequate funds are available that is when capital is rationed projects cannot be selected by ranking by absolute NPV. Selecting a project with a large NPV may signify not choosing smaller projects that in combination give a higher NPV. In its place if projects are divisible they are able to be ranked using the profitability index in order make the optimum selection. If projects aren't divisible different combinations of available projects should be evaluated to select the combination with the highest NPV.
What is the Benefits of divestment ¸ Releases cash tied up to finance more promising opportunities. ¸ Reduces diversification and complexity of a group in case of a demerger
Illustrations of substantive tests Agree a sample of wages payments to the existence of these individuals and personnel records. Agree a sample of cashbook payments to
Q. Merits of net present value method? Merits of NPV method:- (i) Time value of funds is taken into consideration: - For the reason that this method takes into account the t
The main drawback of the tradition approach of valuation is that it discounts every cash flow using the same discount rate. For example, let us take 5-year (7.00 per ce
explain the concept of working capital management?
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X & Y is desirous to purchase a business and has consulted you, and one point on which you are asked to advice them, is the average amount of working capital which will be required
The so-called "cash flow" (net income plus depreciation) is a flow of cash, but is it a flow to the shareholders or to the company? Suppose that net income plus depreciation is
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