Net present value (npv), Financial Management

Assignment Help:

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.

Related Discussions:- Net present value (npv)

Case study on labour standars, describe the impact of different types of st...

describe the impact of different types of standards on motivation, and specifically , the likely effects on motivation of adopting the labor standards recommended for geeta & compa

Calculation of before-tax return on capital, Calculation of before-tax retu...

Calculation of before-tax return on capital employed Total net before-tax cash flow = 122 + 143 + 187 + 78 = $530000 Total depreciation = 250000 - 5000 = $245000 Average

What are agency problems, What are agency problems? and between what two st...

What are agency problems? and between what two stakeholders do agency problem typically occur?

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

Use npv method to show your calculations, Xcell engineering is planning to ...

Xcell engineering is planning to construct a futsal stadium which has 5 courts to be rented out at any point of time. Its initial cost of investment is RM$280,000. It is expected t

Determining the call option value, The effective maturity of a ...

The effective maturity of a callable bond can be anywhere between the first call date and its maturity date due to the presence of the call feat

Hedge against this foreign currency exposure, Question: Part A: Just...

Question: Part A: Justify and criticize the usual assumption made in Financial Management literature that the objective of a firm is to maximize the wealth of its sharehol

Calculate actual returns using the dividend discount model, You've just won...

You've just won a huge $100 million lottery.  You've decided to invest your winnings in the following way:  $30 million in real estate,  $30 million in  corporate bonds and $40 mil

The mechanism of a swap in risk management, QUESTION i) Discuss the ris...

QUESTION i) Discuss the risk associated with changes in exchange rates. ii) How can these risks be managed internally? iii) Explain how a manager can use a forward contra

Define defined benefit and defined contribution pension plan, Compare and c...

Compare and contrast a defined benefit and a defined contribution pension plan. In a defined benefit plan, retirement benefits are defined by a formula that generally considers t

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