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

What are the government securities - debt securities, What are the Governm...

What are the Government Securities Government is one of the biggest borrowers from capital and money market. We have already taken a look at money market securities offered by

Cost of capital, the nu-nu brothers inc. (NNBI) has the following capital s...

the nu-nu brothers inc. (NNBI) has the following capital structure,

Determine the expected return, Question : (a) Lucky Corporation is cons...

Question : (a) Lucky Corporation is considering an investment in one of the two mutually exclusive proposals: Project A which involves an initial outlay of Rs 170,000 and Proj

Preparing the divestiture, Preparing the Divestiture No two divestiture...

Preparing the Divestiture No two divestitures are exactly alike and one of the foremost tasks of the project team is to determine precisely what is to be sold. While some dives

What do you mean by public deposits, Q. What do you mean by Public deposits...

Q. What do you mean by Public deposits? Public deposits are the fixed deposited by the business enterprises directly from the company. This source of the raising the short term

Risk-free rate, Assume you manage a $4.42 million fund that having of four ...

Assume you manage a $4.42 million fund that having of four stocks with the following investments: Stock Investment Beta A

Find the present value of the incremental cash flows, PC Shopping Network m...

PC Shopping Network may upgrade its modem pool. It last upgraded 2 years ago, when it spent $115 million on equipment with a life of 5 years and a salvage value of $15 million. The

Federal reserve board, Federal Reserve Board The Federal Reserve Board ...

Federal Reserve Board The Federal Reserve Board controls the nation's monetary policy, regulates banks, and searches to keep the financial stability of the United States. Its 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