How to Write a Summary of an Article? Net Present Value and Correct Answer Question 1 2 out of 2 points Assume that the economy is in a mild recession, and as a result interest rates and money costs generally are relatively low.
This is both because of earnings that could potentially be made using the money during the intervening time and because of inflation. The discount rate element of the NPV formula is a way to account for this. The amount the retail clothing business pays for the store represents Co. Estimated factors include investment costs, discount rate and projected returns.
Additionally, discount rates and cash inflow estimates may not inherently account for risk associated with the project and may assume the maximum possible cash inflows over an investment period.
This may occur as a means of artificially increasing investor confidence.
As such, these factors may need to be adjusted to account for unexpected costs or losses or for overly optimistic cash inflow projections. It is much simpler than NPV, mainly gauging the time required after an investment to recoup the initial costs of that investment. For this reason, payback periods calculated for longer investments have a greater potential for inaccuracy, as they encompass more time during which inflation may occur and skew projected earnings and, thus, the real payback period as well.
Moreover, the payback period is strictly limited to the amount of time required to earn back initial investment costs. As such, it also fails to account for the profitability of an investment after that investment has reached the end of its payback period.
Net Present Value vs. For example, IRR could be used to compare the anticipated profitability of a three-year investment with that of a year investment because it appears as an annualized figure.
Yet, the same is not true for net present value. If the investment period is longer than one year, NPV will not account for the rate of earnings in a way allowing for easy comparison.Basic present value calculations Calculate the present value of the following cash flows, rounding to the nearest dollar: a.
A single cash inflow of $12, in five years, discounted at a 12% rate of return. Net present value In finance, the net present value (NPV) or net present worth (NPW) of a time series of cash flows, both incoming and outgoing, is defined as the sum of the present values (PVs) of the individual cash flows.
In case when all future cash flows are incoming (such as coupons and principal of a bond) and the only outflow of cash is.
BUS Quiz 9. STUDY. PLAY. Assuming an 8% discount rate, the present value of a $10, payment received in five years is Entry field with correct answer $6, $10, $6, $3, Entry field with correct answer The net present value of the truck is greater than zero.
Net present value is a capital budgeting method that is likely the most correct capital budgeting method that business owners can use in evaluating whether to invest or not invest in a new capital project. It is more correct from a mathematical point of view and a time value of money point of view than either payback period or discounted payback .
Net present value is the difference between the present value of cash inflows and the present value of cash outflows that occur as a result of undertaking an investment project. It may be .
Net Present Value and Correct Answer; Net Present Value and Correct Answer. Present Value. Question 1 2 out of 2 points | | | Assume that the economy is in a mild recession, and as a result interest rates and money costs generally are relatively low.
The WACC for two mutually exclusive projects that are being considered is 8%.