Net Present Value (NPV) is the difference between sum of the present values (PVs) of the individual cash flows both inflows and outflows.NPV is used in capital budgeting to analyze the profitability of an investment or project. A project with positive NPV is feasible project.
Steps in calculation
Step 1: Identify the discount rate for finding present value
Step 2: Compute the PV of inflow
Step 3: Compute the PV of outflow
Step 4: NPV= PVI-PVO ( Step 2-Step 3)
Between two Project the one which gives higher NPV will be selected.
Steps in calculation
Step 1: Identify the discount rate for finding present value
Step 2: Compute the PV of inflow
Step 3: Compute the PV of outflow
Step 4: NPV= PVI-PVO ( Step 2-Step 3)
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