NPV
Net Present Value (NPV) for Capital Rationing In real situations, company may not have enough capitals to invest all profitable projects, so we need to choose projects that give optimal profit and meet with our capitals that have. Project Decision: Combined possible NPVs with available capitals and compare combined NPVs. For example, Combined NPVs (case 1) > Combined NPVs (case2),
Continue reading Net Present Value (NPV) for Mutually Exclusive Project Mutually exclusive project is different independent project. For mutually exclusive project, we can accept project A or B or deny both, but we cannot accept both projects. We may solve mutually exclusive projects using NPV with following two methods: Compare NPV if NPV(A)>NPV(B), so choose project A Compute incremental NPV solved via
Continue reading Net Present Value (NPV) for Independent Project Company may have some projects to make decision invest or not. The independent project is one whose acceptance or rejection is independent of the acceptance or rejection of the other projects. Project decision: if independent project NPV>0=> accept the project if independent project NPV<0=>reject the project if independent project NPV=0=>indifference Example: ABC Corporation
Continue reading How to Build Net Present Value (NPV) Profile/Graph NPV graph makes an easy way to visualize whether or not an investment should be undertaken. Three different points are important to build a NPV graph for a project as follows: Determine NPV value at zero discount rate ( r =0) Determine NPV value at any discount rate Determine discount rate value
Continue reading Net Present Value (NPV) for Mixture Project NPV for mixture project is mixed financing project and investing project, and its cash flows can be positive or negative after initial cash flow. NPV= initial cash flow – sum of present value of each cash outflow + sum of present value of each cash inflow Project decision: if NPV>0=> accept the project
Continue reading Financing Project NPV= Cash receipt – sum of present value of each cash outflow There are two types of sum of present value of each cash outflow: Annuity Not Annuity Project decision: if NPV>0=> accept the project if NPV<0=>reject the project if NPV=0=>indifference Example: Suppose you are offered $5,000 today but must make the following payments. Required 1.What is the
Continue reading Investing Project NPV= sum of present value of each cash inflow – initial investment There are two types for sum of present value of each cash inflow : 1.Annuity 2. Not Annuity Project decision: if NPV>0=> accept the project if NPV<0=>reject the project if NPV=0=>indifference Advantage for NPV: it regards all period of project life in calculating. it considers the time value
Continue reading In finance, the net present value (NPV) or net present worth (NPW) is a measurement of the profitability of an undertaking that is calculated by subtracting the present values (PV) of cash outflows (including initial cost) from the present values of cash inflows over a period of time. Incoming and outgoing cash flows can also be described as benefit and
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