Question

Explain the advantages and disadvantages to the net present value technique. Explain under what circumstances the...

Explain the advantages and disadvantages to the net present value technique. Explain under what circumstances the NPV and IRR could provide different decisions. Please provide examples (numerical form) which would support your response.

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

The advantages of the NPV technique are as follows :-

1. NPV incorporates time value of money in the analysis

2. NPV is the best technque used to compare projects in different analysis like scenario analysis, due dilligence, capital budgeting etc.

The disadvantage of NPV are as follows :-

1. Extra cost or sunk costs not included in the analysis

2. The required rate used in the time value of money calculation is difficult to ascertain

3. NPV favours bigger cash flow projects

Numericals where NPV and IRR will present different results is as follows :-

I hope this helps

Pleass press the like button

Took real efforts

Thanks & Regards

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Explain in detail under what circumstances the Net Present Value (NPV) and Internal Rate of Return...
Explain in detail under what circumstances the Net Present Value (NPV) and Internal Rate of Return (IRR) could provide different decisions. Which method would you follow in the case of such inconsistent conclusions?
What are some advantages/disadvantages of US legal system? Support your response with appropriate examples and/or sound...
What are some advantages/disadvantages of US legal system? Support your response with appropriate examples and/or sound reasoning reflecting an understanding of the relevant content knowledge.
Explain the circumstances under which it might be necessary to reduce a design to a FRACTIONAL...
Explain the circumstances under which it might be necessary to reduce a design to a FRACTIONAL FACTORIAL experiment through some form of screening or blocking model. Provide an example (real or imagined) to illustrate your thinking, and explain the rationale that you would offer to management for why your example would still give valid results.
When or under what circumstances, if at all, should assisted migration of species to locations outside...
When or under what circumstances, if at all, should assisted migration of species to locations outside their current range be used as a tool in the conservation and management of species and ecological systems. What are some advantages and disadvantages? Argue your point. Please write a some sentences explaining why.
When or under what circumstances, if at all, should assisted migration of species to locations outside...
When or under what circumstances, if at all, should assisted migration of species to locations outside their current range be used as a tool in the conservation and management of species and ecological systems. What are some advantages and disadvantages? Argue your point. Please write a some sentences explaining why.
When would a firm choose to operate on a transnational basis? Under what circumstances would a...
When would a firm choose to operate on a transnational basis? Under what circumstances would a firm use a localization strategy? When would an International strategy be employed? When would a firm operation a global standardization strategy? Support your answers with examples.
11. The discount rate that makes the net present value of an investment exactly equal to...
11. The discount rate that makes the net present value of an investment exactly equal to zero is the: A) Payback period. B) Internal rate of return. C) Average accounting return. D) Profitability index. E) Discounted payback period. 12. The internal rate of return (IRR) rule can be best stated as: A) An investment is acceptable if its IRR is exactly equal to its net present value (NPV). B) An investment is acceptable if its IRR is exactly equal to...
Net Present Value Versus Internal Rate of Return For discount factors use Exhibit 12B-1 and Exhibit...
Net Present Value Versus Internal Rate of Return For discount factors use Exhibit 12B-1 and Exhibit 12B-2. Skiba Company is thinking about two different modifications to its current manufacturing process. The after-tax cash flows associated with the two investments follow: Year Project I Project II 0 $(100,000) $(100,000) 1 —           63,857 2   134,560     63,857 Skiba's cost of capital is 12%. Required: 1. Compute the NPV and the IRR for each investment. Round present value calculations and your final NPV answers...
Understanding the IRR and NPV The net present value (NPV) and internal rate of return (IRR)...
Understanding the IRR and NPV The net present value (NPV) and internal rate of return (IRR) methods of investment analysis are interrelated and are sometimes used together to make capital budgeting decisions. Consider the case of Blue Hamster Manufacturing Inc.: Last Tuesday, Blue Hamster Manufacturing Inc. lost a portion of its planning and financial data when both its main and its backup servers crashed. The company’s CFO remembers that the internal rate of return (IRR) of Project Delta is 11.3%,...
1) Capital budgeting is the process of analyzing potential projects. What does net present value (NPV)...
1) Capital budgeting is the process of analyzing potential projects. What does net present value (NPV) represent in capital budgeting analysis? How does NPV compare to internal rate of return (IRR); specifically, what makes them similar and different? What functional flaw exists in the discounted payback period calculation that makes this capital budgeting tool suspect?
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT