Explain the meaning of NPV and its advantages

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Question - A firm is considering investing in a project that requires an initial investment of $200,000 and is expected to produce cash inflows of $60,000, $80,000, and $100,000 in first, second, and third years. There will be no residual value.

The firm applies a discount rate of 10%.

Discount factors for Year 1, 2 and 3 are 0.909, 0.826, and 0.751 respectively.

Required -

i) Calculate the NPV of the project.

ii) Explain the meaning of NPV and its advantages as an investment evaluation method compared with the Accounting Rate of Return and Payback methods.

Reference no: EM132579059

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