Explain net present value method, Financial Management

Assignment Help:

Q. Explain Net Present Value Method?

Net Present Value (NPV) Method: - This process measures the Present value of returns per rupee invested. In this method present value of Institute of IT & Management cash outflows and cash inflows is computed and the present value of cash outflow is subtracted from the present value of cash inflows. The difference is described as NPV.

NPV= PV of Inflow - PV of Outflow

OR

NPV = [(Cash inflow in 1st year x PVF 1) + (Cash inflow in 2nd year x PVF 2) + (Cash

inflow in 3rdyear x PVF 3) +-----------(Cash inflow in nth year XPVFn)] - [Initial cash outflow X PVF 0]

PVF1 = Present Value Factor in 1st year

PVF2 = Present value factor in 2nd year and so on.

If PVF is not given, we may calculate NPV as follows:

OR

NPV = [Cash inflow in 1st year X 1/(1+r)1 ] + [Cash inflow in 2nd year X 1/(1+r) 2] +

[Cash inflow in 3rd year X 1/(1+r)3 ] +--------[Cash inflow in nth year X 1/(1+r)n ] - [Initial Cash outflow X 1/(1+r)0]

Accept-Reject Criteria:-

  • If NPV is positive the project possibly accepted
  • If NPV is negative the project mayn't be accepted.
  • If NPV is zero the project may be accepted merely if non-financial benefits are there.

Related Discussions:- Explain net present value method

Display the position explicitly, Q. Display the position explicitly Ex...

Q. Display the position explicitly Example: I borrow 7800000 HKD at time t = t 0 at an interest rate r t0 . After one year I pay back 7800000(1 + rt o ). At

Finance case study, This case has been framed in order to test the skills i...

This case has been framed in order to test the skills in evaluating a credit request and reaching a correct decision. Perluence International is large manufacturer

Finance, Do you provide help in college level Managerial Finance?

Do you provide help in college level Managerial Finance?

Loans from the financial institutions, Loans from the financial institution...

Loans from the financial institutions: Financial institutions such as the commercial bank life insurance corporation, industries financial development corporation bank of the

Optimal portfolio selection, Optimal Portfolio Selection: The next step...

Optimal Portfolio Selection: The next step involves selecting the optimal portfolio. The strategic asset allocation will have overriding importance in pension fund management.

What are the material items are carried out, What are the Material items ar...

What are the Material items are carried out Material items would have an impact on: Audit tests carried out. For illustration compliance based testing (relying on contro

Debt securities, Fixed income security is a financial obligation of an ...

Fixed income security is a financial obligation of an entity, which promises to pay a pre-specified amount of money at per-specified date. Debt securities (

Types of firms in securities firms and investment banking, What are the typ...

What are the types of firms that securities firms and investment banking industry included? Into the USA, the securities firms and investment banking industry comprises several

Examine the difference between explicit and implicit cost, Examine the diff...

Examine the difference between Explicit Cost and Implicit Cost Cost of capital can be either implicit cost or explicit. Explicit cost of any source of capital is the discount r

What do you understand by business cycle, Q. What do you understand by Busi...

Q. What do you understand by Business cycle? Business cycle: business cycle refers to the alternate expansion and contraction in the general business activity. in a period of t

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd