Question

Explain/teach the concept of Net Present Value.

Explain/teach the concept of Net Present Value.

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Net Present Value is the Present Value of all the future cash flows discounted at an appropriate rate. The discount rate measures the riskiness of the cash flows.

Suppose a company makes an initial investment of $1,000,000 and the investment generates a cash flow of $100,000 for 15 years, then the NPV of the investment can be found using the below formula assuming a discount rate of 10%.

If the NPV is positive, it indicates that the present value of the benefits is greater than the present value of the costs. So, the investment is a profitable one. On the other hand, if NPV is negative, then the company should not take the investment.

If the cash flows are not the same each year, then each cash flow is discounted separately to find the Net Present Value.

Can you please upvote? Thank You :-)

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
1. Please explain the concept of Present Value and Future Value. Why would you think these...
1. Please explain the concept of Present Value and Future Value. Why would you think these calculations are important? 2. What is the Net Present Value of an investment? Why is this important to understand? Why Use Net Present Value?
If the net present value of a project is −$10,000, and the net present value of...
If the net present value of a project is −$10,000, and the net present value of leasing for the project is +$12,000, calculate the APV (adjusted present value) of the project. Group of answer choices ($10,000) ($2,000) $2,000 $12,000
The following questions relate to the concept of present value. a. Find the present value of...
The following questions relate to the concept of present value. a. Find the present value of $1000 to be paid 3 years in the future if the interest rate is 5%. b. Find the present value of $1000 to be paid in 5 years in the future if the interest rate is 5%? c. What do you notice about the relationship between time and present value? The further into the future a payment (or event) occurs, what happens to the...
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.
explain net present value relative to the internal rate of return is superior measure in project...
explain net present value relative to the internal rate of return is superior measure in project valuation
Excel has a formula to calculate Net Present Value. Explain how the formula is used to...
Excel has a formula to calculate Net Present Value. Explain how the formula is used to perform the calculation. Specifically, identify each component of the formula and explain its meaning.
Discuss the concept of payback period vs. discounted payback period. Also discuss the concept of Net...
Discuss the concept of payback period vs. discounted payback period. Also discuss the concept of Net Present Value (NPV) and why it is important for companies to understand this model. Remember to mention the value of this concept when different projects are under consideration, especially when they have unequal lives.
When applying the concept of present value to capital budgeting decisions, which of the following statements...
When applying the concept of present value to capital budgeting decisions, which of the following statements is TRUE? Question 28 options: Internal rate of return cannot be computed when cash flows are unequal year to year A project with a higher IRR will be preferable over one with a lower IRR. A positive NPV means that a project earns less than the cost of capital on a project. Residual value is not included in the calculation of Net Present Value.
When using the Net Present Value method, A project is acceptable if the present value of...
When using the Net Present Value method, A project is acceptable if the present value of benefits equals the present value of outflows. A project is acceptable if the present value of benefits exceeds a specified minimum value. None of the answers provided is correct A project is acceptable if the required rate of return on the project is equal to the cost of the firm’s capital. Projects with positive net present values increase the value of the firm.
Please explain the reasoning behind the following: why* might an NPV (net present value) of 100$...
Please explain the reasoning behind the following: why* might an NPV (net present value) of 100$ in years 2-3 to be higher or lower than in years 3-4?
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT