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## Net Present Value: The Advantages Of Net Present Value

Net Present Value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows. NPV is used in capital investment to break down the profitability of a projected investment or project. The following is the formula for calculating NPV : A positive Net Present Value point that the projected earnings generated by a project or investment (in present dollars) exceed the anticipated costs (also in present dollars). Normally, a profitable investment has a

## Net Present Value

a. 7.1%; 0.53 b. 7.1%; 1.90 c. 3.7%; 0.53 d. 3.7%; 1.90 12.) Market-value ratio: RTR Corp. has reported a net income of $812,425 for the year. The company’s share price is $13.45, and the company has 490,475 shares outstanding. Compute the firm’s price-earnings ratio. q. 4.87 times r. 8.12 times s. 5.17 times t

## Net Present Value

importance and that they affect the results of the NPV. Such factors are; a) Time value of money b) Inflation c) Depreciation d) Taxation / Written down allowance Time value of the money is based on the concept that the value of the money increases over time, e.g. £1 earned or spent sooner is worth more than £1 earned or spent later. There are many reasons for this rise in worth of present value of £1 in the future. * Uncertainty The business world is considered full of

## Net Present Value

Critics to DCF methods Ducht an UK companies * However, it is found inappropriate to use DCF methods for investments that have got strategic implications. * There are various reasons for the use of open approach. Since the outcomes of these projects are highly unforeseen, according one interviewee, the application of quantitative tools is not plausible. Therefore, companies tend to apply the rule of thumb methods rather than standardized quantitative models. The justification for not applying

## Net Present Value/Present Value Index

Net Present Value/Present Value Index The management team at Savage Corporation is evaluating two alternative capital investment opportunities. The first alternative, modernizing the company’s current machinery, costs $45,000. Management estimates the modernization project will reduce annual net cash outflows by $12,500 per year for the next five years. The second alternative, purchasing a new machine, costs $56,500. The new machine is expected to have a five-year useful life and a $4,000

## Net Present Value Essay

1. Basic present value calculations Calculate the present value of the following cash flows, rounding to the nearest dollar: a. A single cash inflow of $12,000 in five years, discounted at a 12% rate of return. b. An annual receipt of $16,000 over the next 12 years, discounted at a 14% rate of return. c. A single receipt of $15,000 at the end of Year 1 followed by a single receipt of $10,000 at the end of Year 3. The company has a 10% rate of return. d. An annual receipt of $8,000 for three

## Net Present Value and Question

B) Total return equals earnings multiplied by the dividend payout rate. C) Cutting the firm 's dividend to increase investment will raise the share price if, and only if, the new investments have a positive net present value (NPV). D) We cannot use the constant dividend growth model to value the shares of a firm with rapid or changing growth. 5(41) Question 9 Bandicoot Enterprises just announced that it plans to cut its dividend (in one year

## Net Present Value Essay

grow. Although, this is true it much more valuable to know about the value and benefit of the investment. Selecting the best investment choice will ensure growth in the future and will generate value. The problem typically arises when trying to utilize capital budgeting skills in determining different tasks with the same risk. There are many ways to determine the correct return gained from investments. The (NPV) Net Present Value has proven to be the best method for organizations to use. NPV gives

## Net Present Value and Project

forecast to be of a positive value if the demand for refrigerators is at an average or strong demand from consumers. However, the realization of a high or average demand is mainly based on ‘gut-feeling’ rather than on sound financial information. There are too many variables in the marketplace that could cause demand to be weaker than projected. Such variables as a weak economy or recession could cause sales to drop which in turn would cause the project to lose its value quickly. 2) What is the

## Notes On The Net Present Value

Question C [1] The Net Present Value [NPV] is the total sum of the present values of all the expected cash flows. For a project with a normal cash flows, this would mean that the NPV is the present value of expected cash flows minus the initial cost of the project. The formula is as such; NPV = -CF0 + CF1 (1+k)-1 + CF2 (1+k)-2 + … + CFn (1+k)-n where; CF0 is the initial investment outlay, or cash outflow CFt is the after-taxed cash inflows at time t k is the required rate of return for the project