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brownbear692Lv1
28 Sep 2019
Let's dive a little deeper into the meaning of these models.According to the NPV method, a dollar that is received immediatelyis preferable to a dollar received at some future date. The methoddiscounts the cash flow based on the time value of money concept.You calculate the present value of expected net cash flows of aninvestment discounted at the cost of capital and subtract theinitial cash outlay of the project. If the NPV is positive, theproject is acceptable, and if the NPV is negative, the projectshould be rejected. When the projects are mutually exclusive theproject with the highest NPV should be accepted. In whatcircumstances would NPV be the best approach to use? Can youprovide the same analysis for a different method?
Let's dive a little deeper into the meaning of these models.According to the NPV method, a dollar that is received immediatelyis preferable to a dollar received at some future date. The methoddiscounts the cash flow based on the time value of money concept.You calculate the present value of expected net cash flows of aninvestment discounted at the cost of capital and subtract theinitial cash outlay of the project. If the NPV is positive, theproject is acceptable, and if the NPV is negative, the projectshould be rejected. When the projects are mutually exclusive theproject with the highest NPV should be accepted. In whatcircumstances would NPV be the best approach to use? Can youprovide the same analysis for a different method?
Beverley SmithLv2
28 Sep 2019