What Are The Advantages Of The Net Present Value

Corporate Finance talk overion Week 2

discussion Questions:
1. Discuss the importance of investment selection criterias, comp ar and contrast them.
2. What are the advantages of the net dumbfound measure out (NPV) selection criteria to the opposite methods?
3. Discuss qualitative versus quantitative approaches in in investment selection, why is quantitative fundamentally important?
2. What are the advantages of the net present cherish (NPV) selection criteria to the other methods?
The net present range (NPV) or net present worth (NPW) is the difference amongst the present value of the bills inflows ( emerging benefits) and the present value of the cash outflows ( cracking invested), push awayed at companys cost of capital. In other words, it compares the value of a dollar today with the value of the resembling dollar in the future, taking into account inflation and returns. thither are some rules that have to be considered when applying the NPV rule:
* A take in that has a positive NPV should be accepted; a project that has a negative NPV should be rejected.
* If more than mavin project are analysed, projects that equally acceptable, the project that has the higher NPV leave behind be chosen.
* This method is considered as the best investment assessment.




To synthesize, the formula of the net present value is NPV = -I0 + C1/(1+r) + C2/(1+r)2+ C3/(1+r)3+….+Cn/(1+r)n where
I0 is the initial value
C1, C2, C3,…,Cn are the project cash flows occurring in future 1, 2, 3,….,n years
r is the cost of capital or required rate of return
The advantages of the net present value method are:
1. Tells whether the investment will increase the firms value (giving an absolute value of the chosen project)
2. Considers all the cash flows for the total life of the project, as well as changes in discount rate of the project.
3. Considers the time value of money; Agrees upon the fact the future returns may be less valuable than current returns and so takes into account of the...If you want to get a full essay, articulate it on our website: Orderessay



If you want to get a full essay, wisit our page: write my essay .