What Are The Advantages Of The Net Present Value

Corporate Finance talk overion Week 2 interchange Questions: 1. Discuss the importance of investment excerption criterias, comp ar and telephone circuit them. 2. What argon the advantages of the bring in dumbfound measure out (NPV) selection criteria to the opposite manners? 3. Discuss qualitative versus quantitative approaches in in investment selection, why is quantitative fundamentally important? 2. What are the advantages of the net position cherish (NPV) selection criteria to the other methods? The net enclose range (NPV) or net present expenditure (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 uppercase. 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 applying the NPV rule: * A take in that has a compulsive NPV should be accepted; a project that has a nix NPV should be rejected. * If more than mavin project are analysed, projects that equally 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 cash flows occurring in future 1, 2, 3,.,n years r is the cost of ca pital or required rate of return The advant! ages of the net present value method are: 1. Tells whether the investment will amplification 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 item the future returns may be less valuable than circulating(prenominal) returns and so takes into account of the...If you want to get a overflowing essay, articulate it on our website: OrderCustomPaper.com

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