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Questions and Answers
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?
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?
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.
