Podcast
Questions and Answers
Explain the Net Present Value (NPV) rule and its components.
Explain the Net Present Value (NPV) rule and its components.
The NPV rule calculates the present value of future cash flows and subtracts the initial investment. The components are the total present value of future cash flows, the initial investment, and the discount rate.
What are the steps involved in estimating NPV?
What are the steps involved in estimating NPV?
The steps involved in estimating NPV are: 1. Estimating future cash flows by determining the amount and timing of the cash flows. 2. Estimating the discount rate. 3. Estimating the initial costs.
What are the minimum acceptance and ranking criteria for NPV projects?
What are the minimum acceptance and ranking criteria for NPV projects?
The minimum acceptance criteria is to accept the project if the NPV is greater than 0. The ranking criteria is to choose the project with the highest NPV.
Flashcards
Net Present Value (NPV) Rule
Net Present Value (NPV) Rule
Calculates the present value of future cash flows and subtracts the initial investment.
Steps to Estimate NPV
Steps to Estimate NPV
- Estimate future cash flows (amount and timing). 2. Estimate the discount rate. 3. Estimate initial costs.
NPV Project Criteria
NPV Project Criteria
Accept if the NPV is greater than 0. When choosing between projects, choose the project with the highest NPV.
