Explain net present value method, Financial Management

Assignment Help:

Q. Explain Net Present Value Method?

Net Present Value (NPV) Method: - This process measures the Present value of returns per rupee invested. In this method present value of Institute of IT & Management cash outflows and cash inflows is computed and the present value of cash outflow is subtracted from the present value of cash inflows. The difference is described as NPV.

NPV= PV of Inflow - PV of Outflow

OR

NPV = [(Cash inflow in 1st year x PVF 1) + (Cash inflow in 2nd year x PVF 2) + (Cash

inflow in 3rdyear x PVF 3) +-----------(Cash inflow in nth year XPVFn)] - [Initial cash outflow X PVF 0]

PVF1 = Present Value Factor in 1st year

PVF2 = Present value factor in 2nd year and so on.

If PVF is not given, we may calculate NPV as follows:

OR

NPV = [Cash inflow in 1st year X 1/(1+r)1 ] + [Cash inflow in 2nd year X 1/(1+r) 2] +

[Cash inflow in 3rd year X 1/(1+r)3 ] +--------[Cash inflow in nth year X 1/(1+r)n ] - [Initial Cash outflow X 1/(1+r)0]

Accept-Reject Criteria:-

  • If NPV is positive the project possibly accepted
  • If NPV is negative the project mayn't be accepted.
  • If NPV is zero the project may be accepted merely if non-financial benefits are there.

Related Discussions:- Explain net present value method

Generation of capital projects in the public sector, Question: (a) In t...

Question: (a) In the Strategic Planning Model, describe the various stages involved in the generation of capital projects in the public sector. (b) Outline the life cycle-co

Interpretations of short term solvency or liquidity ratio''s, Short Term So...

Short Term Solvency or Liquidity Ratio's   CR:          The Current Ratio is calculated by current assets to current liabilities and is the index of company's financial stab

Process of bringing a new international bond issue to market, Discuss the p...

Discuss the process of bringing a new international bond issue to market. Answer:  A borrower desiring to increase funds by issuing Eurobonds to the investing public will conta

Estimate the companys wacc, Assemble all other inputs/assumptions based on ...

Assemble all other inputs/assumptions based on the past data. Use your best judgment to have the most reasonable estimates. Tasks 1. Prepare an Excel spreadsheet containi

Forms of liquidity, Forms of Liquidity: Definition: Liquidity defines ...

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

Use of derivatives in equity portfolio management, Do you provide assignmen...

Do you provide assignment help on the topic Use of Derivatives in Equity Portfolio Management?

Share price, what course a decrease and increase in share price

what course a decrease and increase in share price

Players in primary market, PLAYERS IN THE PRIMARY MARKET Some important...

PLAYERS IN THE PRIMARY MARKET Some important players in the primary market are: Merchant Bankers When a company approaches the public for funds, merchant bankers manage

Explain the market analysis of events, Question 1 Describe the Cost Vol...

Question 1 Describe the Cost Volume Profit analysis. Explain its features, objectives and elements(CVP analysis) Question 2 Write in detail about the classification of

Extendible reset bonds, Extendible reset bonds are floaters in which ...

Extendible reset bonds are floaters in which the issuer is required to reset the coupon rate so that the issue will trade at a predetermined price (usually above

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd