StudentShare
Contact Us
Sign In / Sign Up for FREE
Search
Go to advanced search...
Free

Concept of Net Present Value - Essay Example

Cite this document
Summary
The essay "Concept of Net Present Value" focuses on the critical analysis of the major issues in the concept of net present value. It is an analytic tool that can help both corporations and novice investors. From an investor standpoint, the use of net present value is very useful…
Download full paper File format: .doc, available for editing
GRAB THE BEST PAPER98.8% of users find it useful
Concept of Net Present Value
Read Text Preview

Extract of sample "Concept of Net Present Value"

The concept of net present value is an analytic tool that can help both corporations and novice investors. From an investor standpoint, the use of net present value is very useful because net present value takes into consideration the time value of money. Due to inflation money depreciates over time. A person who has $100 saved up in a cookie jar and leaves it there for five years will lose money because those $100 will not have the same purchasing power five years into the future. Using the net present value table can help a person determine how much interest is required to ensure that the individual does not lose purchasing power over time.

The net present value is also used in the corporate world as a capital budgeting technique referred to as NPV which is useful because it helps corporations determine which project to choose from when there are various alternatives. The net present value technique uses discounted yearly cash flows from projects to evaluate whether a project should be accepted or rejected (Besley, Brigham, 2000). The NPV method can be used to evaluate one project or various projects. When evaluating a single project the manager should accept the project if its net present value is above cero. Projects with negative net present value should be rejected. In the case when a manager has to choose among various projects the project with the highest net present value should be chosen over the others. The use of NPV for project selection ensures that companies achieve profitability from a project. Read More
Cite this document
  • APA
  • MLA
  • CHICAGO
(“Net Present Value Essay Example | Topics and Well Written Essays - 250 words - 1”, n.d.)
Net Present Value Essay Example | Topics and Well Written Essays - 250 words - 1. Retrieved from https://studentshare.org/finance-accounting/1673683-net-present-value
(Net Present Value Essay Example | Topics and Well Written Essays - 250 Words - 1)
Net Present Value Essay Example | Topics and Well Written Essays - 250 Words - 1. https://studentshare.org/finance-accounting/1673683-net-present-value.
“Net Present Value Essay Example | Topics and Well Written Essays - 250 Words - 1”, n.d. https://studentshare.org/finance-accounting/1673683-net-present-value.
  • Cited: 0 times

CHECK THESE SAMPLES OF Concept of Net Present Value

Cross-Price Elasticity of Demand

3) Describe how the shareholder wealth-maximization model of the firm on page 8 of your text relates to the Concept of Net Present Value, introduced on page 45.... 4) Examine the net present value problem illustrated on page 46.... Assume the road commissioner is certain that the value of the land will increase to $1.... Even if the bond stays stable at 3%, the value of the land increasing to $1.... If one divides the profit that would be gained by 3 in order to analyze how much money per year would be made in increasing land value, the investment might not be worth the time because one has to keep in mind the interest on that money cannot be made back, nor does that take into account for inflation....
4 Pages (1000 words) Assignment

Time value of money

Finally, calculation of net present value is very useful in solving insurance programming problems of a company.... 241)Through calculating the net present value, firms are able to make accurate estimates on the returns to expect from various investments they choose to undertake.... The net present value is also very important in dealing with loans related issues that may arise.... ? The calculations can be used to state future monetary flows in present value terms and also to restate today's value amounts into future monetary values....
5 Pages (1250 words) Research Paper

Time value of money

It gives us clarity about as to how we should go ahead comparing two different investment avenues in terms of present value.... Cash flow (maturity value) available in this case is $2,000 The time period is one year for which it is required to find the present value, which is given as PV = CF * 1/ (1+r)t PV= 1,850 CF= 2,000 t=1, putting these values in the equation, it can be solved for r (discount rate), which will give us applicable discount rate.... (present value, FinanceProfessor....
3 Pages (750 words) Research Paper

Healthcare Financial Management Decision

The Concept of Net Present Value or the time value of money can be used to compare the present or future values of proposed project investments.... I will use the concepts of net present value (NPV), Return on Investment (ROI), and Profitability Index (PI) to decide between one project and the other.... The total of all the inflows over the life of the project and outflows over the life of the project occurring in different years are combined and reduced to a single total representing the present value of total inflows and outflows, the net present value is arrived at by deducting the present value of inflows from the present value of outflows....
3 Pages (750 words) Essay

The Use of Capital Budgeting Models in Utility Estimation

o address this criticism, we first review the Concept of Net Present Value (NPV).... The PI is the ratio of the present value of net cash inflows to cash outflows and is interpreted as the project's profitability for each dollar invested (Clark, Hindelang, & Pritchard, 1979; Weston & Brigham, 1981).... The paper describes the concept of investment and then distinguish it from the cost concept more familiar to psychologists conducting utility analyses....
7 Pages (1750 words) Research Paper

Net Present Value Evaluation

The essay "net present value Evaluation" focuses on the critical analysis of the major issues in the evaluation of the net present value.... There are various methods available for the appraisal of a project including net present value, Payback period and others.... There are various methods available for appraisal of a project including net present value, Payback period and others.... As the cash outflow is £40000, the net present value comes to £233....
6 Pages (1500 words) Essay

Coffee Manufacturing Company

According to the Concept of Net Present Value, the project is only being accepted if the value of NPV greater than zero.... Under this circumstance, the use of “net present value (NPV)”, the “Internal Rate of Return (IRR)” and “Payback Periods” are of mutual independence, which can be applied to analyse proposed investment decisions and evaluate the resulting impact on the firm value.... Internal Rate of Return (IRR) is the discounted rate that equates cost of the investment with the present value of expected future cash flows....
5 Pages (1250 words) Case Study

The Value of Net Present Value

The paper "The Value of net present value" presents a discounting method of analyzing the viability of a given investment by taking into consideration the time value of money.... net present value net present value is a discounting method of analyzing the viability of a given investment by taking into consideration the time value of money (Megginson, et al page 261).... he net present value (NPV) of the investment ... net present value recognizes time value of money and such appreciates that a shilling now is more valuable than a shilling tomorrow and the two can only be compared if they are at their present value....
8 Pages (2000 words) Assignment
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.
Contact Us