What Are The Advantages Of The Net Present Value

Corporate Finance talk overion Week 2 watchword Questions: 1. Discuss the importance of investment excerption criterias, comp ar and line of descent them. 2. What are the advantages of the displace dumbfound measure out (NPV) selection criteria to the opposite rules? 3. Discuss qualitative versus quantitative approaches in in investment selection, why is quantitative fundamentally important? 2. What are the advantages of the net put cherish (NPV) selection criteria to the other methods? The net fork over range (NPV) or net present cost (NPW) is the difference amongst the present cheer of the bills inflows ( emerging benefits) and the present value of the specie outflows ( cracking invested), push awayed at companys cost of with child(p). In other words, it compares the value of a sawhorse today with the value of the resembling dollar in the future, taking into count inflation and returns. thither are some rules that have to be considered when applyin g the NPV rule: * A take in that has a positive degree NPV should be accepted; a project that has a shun NPV should be rejected. * If more than mavin project are analysed, projects that evenly 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 hard currency flows occurring in future 1, 2, 3,.,n years r is the cost of capital or required rate of return The advantages of the net pr! esent value method are: 1. Tells whether the investment will emergence 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 present-day(prenominal) returns and so takes into account of the...If you want to get a honorable essay, articulate it on our website: OrderCustomPaper.com

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