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

Financial statements for a company, The following is incomplete financial s...

The following is incomplete financial statements for XYZ, Inc.:                                                     XYZ, Inc.

Brigham, how do legal consideration affect a firms credit policy

how do legal consideration affect a firms credit policy

What does weighted average cost of capital, What does the "weight" refer to...

What does the "weight" refer to in the weighted average cost of capital? The weight pass on to in weighted average cost of capital refers to the portion of the total capital in

Capital budgeting, Serene Hall ?? Assignment As a consequence of the high l...

Serene Hall ?? Assignment As a consequence of the high levels of stress being recorded in the UK, and a general shift towards a healthier more relaxed lifestyle, as an essential in

Hy would a borrower be willing to pay and a lender demand, Would there be p...

Would there be positive interest rates on bonds in a world with absolutely no risk no default risk, maturity risk, and so on? Why would a, borrower be willing to pay and a lender d

Loan schedules - fixed vs floating, Consider a mortgage example to nance ...

Consider a mortgage example to nance the purchase of a house or flat. You may use a real example or create a ctitious one. Search for di erent types of mortgages currently on o e

Paper on Estate Planning (3–5 pages), Evaluate the tools commonly used in e...

Evaluate the tools commonly used in estate planning, including trusts, life insurance, and annuities. Compare the tools as to how they would apply for a couple in their mid-50s who

Documenting the accounting system, Documenting the accounting system Th...

Documenting the accounting system There are 3 methods generally used to document the clients system. Narrative notes: Written description of the system Advantages:- C

Operating cycle, what is the applicability of the operating cycle in a vege...

what is the applicability of the operating cycle in a vegetaion farm in Uganda

Identify following belong income statement or the balance, Identify whether...

Identify whether the following items belong on the income statement or the balance sheet. a. Interest Expense IS                                      l. Cash BS b. Prefer

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