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Week 4 - Coggle Diagram

- - - - NPV = present value - price
      - Net cash flows over the asset holding period are discounted by the required rate of return (most of the time WACC) to establish the assets present value worth
      - This is then comparesd to the cost/price of the asset; by substracting the cost from the present value worth
      - The result is a net dollar figure that shows how much shareholders value is increased or decreased
      - Negative NPV implies that the cost > worth. don't invest
      - Positive NPV means that cost < worth. Invest.
    - - Future net cash flows of the asset are discounted to equal the cost, price of the asset
      - This discount rate is effectively the periodic yield/return of the asset.
      - This yield is then compared to the required rate of return
      - IRR < required rate of return (WACC): invest if possible
      - IRR > required rate of return (WACC): don't invest