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Net Present Value (Advantages (Takes account of all relevant cash flows…
Net Present Value
Advantages
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Uses cash flow, not accounting profit
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Can take account of conventional and non conventional cash flows, as well as changes in discount rate during project
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Disadvantages
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Cost of capital may change over project life, rather than being constant
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Scrap or residual value
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This is a cash receipt at the end of the project and needs to be accounted for in the calculation of the investment return
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Difference between Present Value of future benefits and present value of capital invested, discounted at company's cost of capital
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Mutually exclusive projects, select the project with highest NPV
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