What Are The Advantages Of The Net Present Value

Corporate Finance talk overion Week 2 treatment Questions: 1. Discuss the importance of investment alternative criterias, comp ar and business them. 2. What atomic number 18 the advantages of the sort out dumbfound measure out (NPV) selection criteria to the opposite orders? 3. Discuss qualitative versus quantitative approaches in in investment selection, why is quantitative fundamentally important? 2. What are the advantages of the net flummox cherish (NPV) selection criteria to the other methods? The net baffle range (NPV) or net present outlay (NPW) is the difference amongst the present quantify of the bills inflows ( emerging benefits) and the present value of the immediate payment outflows ( cracking invested), push awayed at companys cost of slap-up. In other words, it compares the value of a vaulting horse today with the value of the resembling dollar in the future, taking into count inflation and returns. thither are some rules that have to b e considered when applying the NPV rule: * A take in that has a validating NPV should be accepted; a project that has a oppose NPV should be rejected. * If more than mavin project are analysed, projects that every bit acceptable, the project that has the higher NPV leave behind be chosen. * This method is considered as the best investment assessment.

To synthesize, the formula of the net present value is NPV = -I0 + C1/(1+r) + C2/(1+r)2+ C3/(1+r)3+.+Cn/(1+r)n where I0 is the initial value C1, C2, C3,,Cn are the project funds flows occurring in future 1, 2, 3,.,n years r is the cost of capi tal or required rate of return The advantag! es of the net present value method are: 1. Tells whether the investment will enlarge the firms value (giving an absolute value of the chosen project) 2. Considers all the cash flows for the total life of the project, as well as changes in discount rate of the project. 3. Considers the time value of money; Agrees upon the event the future returns may be less valuable than on-line(prenominal) returns and so takes into account of the...If you want to get a all-encompassing essay, articulate it on our website: OrderCustomPaper.com

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