Question

- Brief literature review on NPV and includes its merits and demerits.

Answer 1

Solution :-

Net Present Value is just a method of Capital Budgeting which is just to compare Projects , Net Present Value is a method which Considers time value of money .

Net Present Value is just a difference of Present Value of Cash inflows and Present Value of Cash Outflows

Formula of NPV = PVCI - PVCO

Merits of NPV :-

The Method NPV includes the time value of money , which helps to better comparison of Projects

Method of NPV helps the management in better decision making

NPV indicates how much value the project will create for the company .

Demerits of NPV :-

One Problem of NPV is that it does not include Hidden Costs , It only include Direct Cash flows .

Another Problem of NPV is that it does not used to compare projects having different Sizes.

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