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

Simple average of the outcomes - time constraint, 1. Your welfare depends o...

1. Your welfare depends on how much time you travel T and how much time you play P and is the product of the two, i.e.,  W = T * P (a) The total amount of time you have is 10 ho

Management of Financial Institution, 1. Why do the banks borrow funds, besi...

1. Why do the banks borrow funds, besides accepting deposits? Discuss in detail the various sources from where banks can borrow funds within India.

Why total assets equal the sum of total liabilities & equity, Why do total ...

Why do total assets equal the sum of total liabilities and equity?Explain. Assets = Liabilities + Equity Assets are the entities of value a business owns. Liabilities ar

Assignment, BFN1014 ...

BFN1014 ASSIGNMENT 2 TRI 2 2012 2013

Explain the currency trading at a discount, What is meant by a currency tra...

What is meant by a currency trading at a discount or at a premium in the forward market? Answer:  The forward market includes contracting today for the future purchase or sale o

Benefits of e-trading, QUESTION (a) (i) Outline some capabilities of E-...

QUESTION (a) (i) Outline some capabilities of E-Trading. (ii) List three benefits of E-Trading. (b) (i) How can privacy be affected in E-Banking? (ii) Outline two meas

Major risk return decision areas, Q. Major Risk Return Decision Areas? ...

Q. Major Risk Return Decision Areas? 1) Financial Analysis and Control: This area is concerned with the Financial Statements, i.e. Income Statement, Balance Sheet, Funds Flow S

Deficiency in operation, Deficiency in Operation - This exists when a prope...

Deficiency in Operation - This exists when a properly designed control doesn't operate as designed or when person performing the control doesn't possess the necessary authority or

Setting budget goals and objectives, Setting Budget Goals and Objectives: ...

Setting Budget Goals and Objectives: Having collected and analysed all relevant information, and made general forecasts as to the key areas of concern / opportunity and special

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