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NPV Based on Net Income or Cash Flows

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Suppose an analyst makes a mistake and calculates the NPV or an investment project by discounting the project's contribution to net income each year rather than by discounting its cash flow. Would you expect the NPV based on net income to be higher or lower than the NPV calculated using cash flows?

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NPV based on the net income or cash flows is discussed.

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There can be difference in cash flow and net income due to following reasons: 1. Higher depreciation will lead to less profits as it is non cash expenditure 2. Higher amortization of expenses will lead to reduction in profits as it is non cash expenditure 3. The company, which is highly geared operationally and financially, generates high cash flows but little profit. The share price is ...

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