Net Present Value
How accurate do you think a company's estimates of the net present value of a proposed project are? Refer to both the initial investment and to the components of the cash flow: revenues, operating expenses, depreciation, taxes, and the cost of capital to use for the computation of the present value.
Keep in mind that Net Present Value (NPV) is the value in today's dollars of cash flows to be received some time in the future minus what we have to pay today to get those cash flows.
Which of the following do you think would give you the most accurate NPV calculation:
(a) a brand new retail startup
(b) a pharmaceutical company introducing a new drug
(c) a company with a successful product in Chile trying to introduce it to the USA.
Among the three options, a pharmaceutical company introducing new drug can give the most accurate NPV calculation. This is because of the experience, as the ...
The solution discusses which type of company might give the most accurate NPV calculation.