Week 9- net present value

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  • Created by: jf00632
  • Created on: 20-01-19 18:15
What is net present value used for?
NPV is used to evaluate the financial return from a potential captial investment allowing for the time value of money. Future values are discounted to present values.
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How do you calculate the present value?
forecast cash flow(discount rate +1)-the year
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How do you calculate the net present value?
Add up all of the present values
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What does it mean if the net present value is negative?
The project does not provide a positive return and therefore is not a worthwhile investmen.
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What does it mean if the net present value is positive?
This shows that it is a worthwhile investment.
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How do you calculate the discount rate?
the % put into decimals +1
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What assumptions does the NPV make?
Assumes a fixed discounted rate. NPV dosent take into account any risk assessments.
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What does the internal rate of return mean?
The discount rate at which the NPV equals 0. if the IRR exceeds a firms required rate of return the investment is desirable.
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Card 2

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How do you calculate the present value?

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forecast cash flow(discount rate +1)-the year

Card 3

Front

How do you calculate the net present value?

Back

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Card 4

Front

What does it mean if the net present value is negative?

Back

Preview of the front of card 4

Card 5

Front

What does it mean if the net present value is positive?

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Preview of the front of card 5
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