FIN 320F Unit 11, 12 & 13 Working Words and Application Problems Study Questions and Answers | 100% Pass
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Course
FIN 320F
Institution
FIN 320F
FIN 320F Unit 11, 12 & 13 Working
Words and Application Problems Study
Questions and Answers | 100% Pass
Describe how NPV is calculated and describe the information this measure provides
about a sequence of cash flows. What is the NPV criterion decision rule? - Answer️️ -
PV is the sum of ...
FIN 320F Unit 11, 12 & 13 Working
Words and Application Problems Study
Questions and Answers | 100% Pass
Describe how NPV is calculated and describe the information this measure provides
about a sequence of cash flows. What is the NPV criterion decision rule? - Answer✔️✔️-
PV is the sum of the present values of a project's cash flows. It's a way of doing cost-
benefit analysis.For most projects their cash flows occur at different points in time. A
valid comparison is possible only if these cash flows can be restated as of a single point
in time. This involves using the opportunity cost, which reflects the basic time value of
money (risk free interest rate) and an appropriate risk premium. Again drawing on the
concept of cost-benefit analysis, NPV measures whether or not the project increases
wealth. Wealth is command over economic assets. Wealth is increased if cash inflows
stated as of today exceed the cash outflows also stated as of today: the cash
available—wealth—has increased.NPV takes into account all aspects of economic
value: cash flows, the timing of these cash flows, and the risk-adjusted opportunity cost.
The NPV decision rule is to accept projects that have a positive NPV, and reject
projects with a negative NPV.
Why is NPV considered to be a superior method of evaluating the cash flows from a
project? Suppose the NPV for a project's cash flows is computed to be $2,500. What
does this number represent with respect to the firm's shareholders? - Answer✔️✔️-NPV
desirability: NPV is superior to the other methods of analysis presented in our course
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