NPV, APR, EAR Calculations
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1. What is the "value additivity corollary" with respect to evaluating ash flows over time?
2. What is the difference between APR (Annual Percentage rate) and EA (Effective Annual rate)?
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An explanation is given in 336 words. An Excel file showing all computations for an example of value additivity corollary, APR and EAR are provided.
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1)
Scenario 1
Suppose that that you have 2 small projects (and no others), each with its own cash flow. You could compute the NPV of each project separately, then add the NPVs together.
Scenario 2
Now, suppose you combine the combine the cash flows from the two small projects together into one huge project, and. You could compute the NPV of the huge project.
The value additivity corollary says that the total NPV Scenario 1 and Scenario 2 are the same. It does ...
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