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Explain Net Present Value (NPV) method

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Why is the use of the NPV methods preferred over other methods in deciding what projects to accept? Compare the NPV methods with others, and discuss the advantages and disadvantages of each method.

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Solution Summary

A Business use Net Present Value (NPV) capital budgeting method to evaluate asset investment projects.

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According to Brigham (2007), Net Present Value (NPV) is a method of ranking investment proposals using the NPV, which is equal to the present value of future net cash flows, discounted at the cost of capital (p.360). Also, De Jonge (2016), explained that NPV is acquired by discounting future cash flows, and the discounting process compounds the interest rate over time.

Comparing the NPV and other Methods

The Net Present Value (NPV) and ...

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Jennifer Agard, PhD
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  • BA, Empire State College, NY
  • MBA, Empire State College, NY.
  • PhD , Concordia University
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