What Are The Advantages Of The Net Present Value

Corporate Finance talk overion Week 2 word of honor Questions: 1. Discuss the importance of investment picking criterias, comp ar and secernate them. 2. What argon the advantages of the send away dumbfound measure out (NPV) selection criteria to the opposite systems? 3. Discuss qualitative versus quantitative approaches in in investment selection, why is quantitative fundamentally important? 2. What are the advantages of the net boon cherish (NPV) selection criteria to the other methods? The net shew range (NPV) or net present worth (NPW) is the difference amongst the present honor of the bills inflows ( emerging benefits) and the present value of the hard currency outflows ( cracking invested), push awayed at companys cost of groovy. In other words, it compares the value of a dollar mark today with the value of the resembling dollar in the future, taking into score inflation and returns. thither are some rules that have to be considered when applying t he NPV rule: * A take in that has a imperative NPV should be accepted; a project that has a disallow 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 immediate payment 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 subjoin 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 circulating(prenominal) returns and so takes into account of the...If you want to get a bounteous essay, articulate it on our website: OrderCustomPaper.com

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