Net present value and other investment
Question 1
List http://college-application-essay-writing130.mystrikingly.com/ the methods that a firm can use to evaluate a potential investment.
The methods used to evaluate a potential investment of the firm are as follows
Net present value(NPV)
Internal rate of return(IRR)
Profitability index(PI)
Cash discounted flow
Pay back period
Accounting rate of return(ARR)
Question 2
Why is the NPV a preferred method when evaluating a potential investment opportunity?
Npv can be explained as the difference between the initial cost outlay and the present value of the future cash flows. The total present value of the yearly net cash flow is the Net present value.
Net present value may be used to find the value or reliability of any investment and also to decide if it is far better than the other investments in the market. It is considered to be a potential investment if the NPV is positive a bad investment decision if the NPV turns out to be negative. Whereas, if the NPV is equal to “0� the decision is indifferent, it can be either accepted or rejected based on other alternates/factors.
