Question

What is the net present value decision rule? How does it relate to future value and net present value?

Answer 1

Net Present value is one of the most use tool for capital budgeting evaluation. under this rule, first present value of future value is calculated uinsg cost of capital as discount rate ofproject and then substract initial investment from present value of future cash flow.

under Net Present value rule,if Net Present value is a positive value that is present value of future cash flow is more than initial investment then project should be accepted else project should be reject.

Future value of cash flow must be discounted to determine present value of cash flow. NPV is discounted value of future value.