Net present value method: npv, finance, Other Engineering

Assignment Help:
Discounted cash flow methods
Net present value method: NPV
It is one of the classic methods of evaluating the investment project. Here each potential projects value is find out its net present value (NPV). This method considers the time value of money and should that cash flow arising at different time differ in value, hence need to find out its present value (Robert Parrino & David s. Kidwell, 2009).
Steps involved in the calculation NPV:
• Find out the cash inflow from a project based on realistic assumption.
• Determine the appropriate discounted rate.
• Calculate the present value of cash inflow based on discounted rate.
• Net present value is calculated by deducting present value of cash outflow from the present inflow (I.M. Pandey, 2005).
Accept Reject rule:
Accept the project if NPV is positive NPV>0
Reject the project if NPV is negative NPV<0 (Robert Parrino & David s. Kidwell, 2009).
Merits of NPV:
• The value of money is considered.
• NPV considers cash flow occurring in the life of the project to calculate its worth.
• This method considers discounting rate to calculate present value of cash flow.
• This method considers the objective of maximizing shareholders wealth (I.M. Pandey, 2005).
Demerits to NPV:
• Difficult to forecast future cash flow as future is uncertain.
• If right discount rate is not considered then it leads to wrong investment decisions.
• It is not suitable when alternative projects with unequal lives exist (I.M. Pandey, 2005).

Related Discussions:- Net present value method: npv, finance

Aerofoil aerodynamics -framework, Framework In the laboratory we will de...

Framework In the laboratory we will deal with low speed flows, at first using the potential flow solver. We will also investigate behaviour for the NACA 4-series of aerofoils.

Rubber, What is smoked rubber

What is smoked rubber

New assembly buildings - fire protection engineering, N e w Assembly Buil...

N e w Assembly Buildings: 12.1.1.1 The requirements of this chapter shall apply to new buildings or portions thereof used as an assembly occupancy. 12.1.3.2 Simultaneous

Electrical engineering, how to get guidance of projects in electrical engin...

how to get guidance of projects in electrical engineering?

International finance, at the beginning of year 1 the terranian central ban...

at the beginning of year 1 the terranian central bank conducted k100 million of dollar selling/terranian kwacha buying intervention. The intervention was undertaken at the rate of

Technical Paper, I need help summarizing a technical paper.

I need help summarizing a technical paper.

Classification of plastic, Q. Discuss the classifications of plastics.     ...

Q. Discuss the classifications of plastics.                                                      OR      Discuss the general properties and classification of plastics.

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