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What is the NPV of the investment?”

What is the NPV of the investment?”

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Answer #1

NPV is a very popular capital budgeting technique.

Under this, we compute the net present value of a proposed investment. The initial outlay is computed. Thereafter the future cash flows from the various projects are estimated. The discount rate used is the WACC of the business. The future cash flows are discounted at the WACC to arive at the present value of cash flows. The total PV of future cash flows- Initial cost gives us the NPV or the net benefit of the investment. If the NPV is positive, the project is viable else not.

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