Clarification of Net Present Value (NPV)
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It appears that NPV or net present value is the best method because it takes into account the initial financial outlay, and brings the future projections back to the present day's value to figure out which is worth pursuing in the long run. Entrepreneurs take many risks, but of course, most wish to take the most calculated risks and prepare for whatever could or would happen in advance. This is were the discount rate is applied to the npv calculation for...to cover a "happen-stance" if and when it pops up. In other words, if for some reason a fluctuation were to occur (like interest rates go up, for example), you aren't losing any money on your project's investments because you have that covered. Am I understanding this correctly and is there more clarification?
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Solution Summary
The net present value (NPV) are examined in the solution. The best methods accounts are determined.
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There are a few distinctions I should point out. NPV is designed to take into account opportunity costs of investment. When it discounts the time value of money, it's saying that there are other things that money could be put to use doing. It takes into account a company's cost of capital. In that a company's cash costs money whether in the form of dividends on outstanding stock or interest payments on debt. Now if the MPV of a project is negative, it is telling the company that rather ...
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- MBA, Merage School of Business, Univ of Cal, Irvine
- BA, Univ of Cal, Irvine
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