NPV AND IRR
ASSIGNMENT TOPIC:
“THE ADVANTAGES AND DISADVANTAGES OF USINFG NPV (NET PRESENT VALUE) AND IRR (INTERNAL RATE OF RETURN)”
NPV (NET PRESENT VALUE)
The difference between the present value of cash inflows and the present value of cash outflows. NPV is used in capital budgeting to analyze the profitability of an investment or project. NPV analysis is sensitive to the reliability of future cash inflows that an investment or project will yield.
NPV compares the value of a dollar today to the value of that same dollar in the future, taking inflation and returns into account. If the NPV of a prospective project is positive, it should be accepted. However, if NPV is negative, the project should probably be rejected because cash flows will also be negative.
Net present value, or NPV, is one of the calculations business managers use to evaluate capital projects. A capital project is a long-term investment or improvement, such as building a new store. The NPV calculation determines the present value of the project's projected future income. In the calculation, the present value of the project's cost is subtracted from the present value of future income. A positive net present value usually means you should accept or implement the project. Business owners who compare two or more projects tend to favor the one with the higher net present value.
ADVANTAGES OF NET PRESENT VALUE (NPV)
1. NPV gives important to the time value of money.
2. In the calculation of NPV, both after cash flow and before cash flow over the life span of the project are considered.
3. Profitability and risk of the projects are given high priority.
4. NPV helps in maximizing the firm's value.
DISADVANTAGES OF NET PRESENT VALUE (NPV)
1. NPV is difficult to use.
2. NPV cannot give accurate decision if the amount of investment of mutually exclusive projects is not equal.
3. It is difficult to calculate the appropriate discount rate.
4. NPV may not give correct decision when the projects
“THE ADVANTAGES AND DISADVANTAGES OF USINFG NPV (NET PRESENT VALUE) AND IRR (INTERNAL RATE OF RETURN)”
NPV (NET PRESENT VALUE)
The difference between the present value of cash inflows and the present value of cash outflows. NPV is used in capital budgeting to analyze the profitability of an investment or project. NPV analysis is sensitive to the reliability of future cash inflows that an investment or project will yield.
NPV compares the value of a dollar today to the value of that same dollar in the future, taking inflation and returns into account. If the NPV of a prospective project is positive, it should be accepted. However, if NPV is negative, the project should probably be rejected because cash flows will also be negative.
Net present value, or NPV, is one of the calculations business managers use to evaluate capital projects. A capital project is a long-term investment or improvement, such as building a new store. The NPV calculation determines the present value of the project's projected future income. In the calculation, the present value of the project's cost is subtracted from the present value of future income. A positive net present value usually means you should accept or implement the project. Business owners who compare two or more projects tend to favor the one with the higher net present value.
ADVANTAGES OF NET PRESENT VALUE (NPV)
1. NPV gives important to the time value of money.
2. In the calculation of NPV, both after cash flow and before cash flow over the life span of the project are considered.
3. Profitability and risk of the projects are given high priority.
4. NPV helps in maximizing the firm's value.
DISADVANTAGES OF NET PRESENT VALUE (NPV)
1. NPV is difficult to use.
2. NPV cannot give accurate decision if the amount of investment of mutually exclusive projects is not equal.
3. It is difficult to calculate the appropriate discount rate.
4. NPV may not give correct decision when the projects