Concerning NPV:8.5 Net Present ValueDescribe how NPV is calculated and describe the information thisa.measure provides about a sequence of cash flows. What is the NPVcriterion decision rule?Why is NPV considered to be a superior method of evaluating the cashflows from a project? Suppose the NPV fora project's cash flows iscomputed to be $2,500. What does this number represent with respectb.to the firm's shareholders?

Question
Asked Nov 12, 2019
1 views

8.6 letters a b and c 

Concerning NPV:
8.5 Net Present Value
Describe how NPV is calculated and describe the information this
a.
measure provides about a sequence of cash flows. What is the NPV
criterion decision rule?
Why is NPV considered to be a superior method of evaluating the cash
flows from a project? Suppose the NPV fora project's cash flows is
computed to be $2,500. What does this number represent with respect
b.
to the firm's shareholders?
help_outline

Image Transcriptionclose

Concerning NPV: 8.5 Net Present Value Describe how NPV is calculated and describe the information this a. measure provides about a sequence of cash flows. What is the NPV criterion decision rule? Why is NPV considered to be a superior method of evaluating the cash flows from a project? Suppose the NPV fora project's cash flows is computed to be $2,500. What does this number represent with respect b. to the firm's shareholders?

fullscreen
check_circle

Expert Answer

Step 1

Hi there, Thanks for posting the question. But as per Q&A guidelines, we should answer the first question only when multiple questions posted in single question. Hence, I'm answering question (a) below. Please repost the remaining question separately.

Step 2

Net present value is one of the discounted techniques in capital budgeting which is used to calculate the profitability of the project or investment. It is the difference of the present value of future cash inflows and initial cost of the project or investment over a period of the project.

Step 3

The following is the formula to calculate the net ...

CF
СЕ
CF
NPV =-CF
(1+r) (+r)
(1+r)
Where,
The net present value is NPV
The initial cash outflow is CF
The annual cash flow in year 1 is CF
The annual cash flow in year 2 is CF
The annual cash flow at the end of project life is CF
The discount rate or rate of return is r
help_outline

Image Transcriptionclose

CF СЕ CF NPV =-CF (1+r) (+r) (1+r) Where, The net present value is NPV The initial cash outflow is CF The annual cash flow in year 1 is CF The annual cash flow in year 2 is CF The annual cash flow at the end of project life is CF The discount rate or rate of return is r

fullscreen

Want to see the full answer?

See Solution

Check out a sample Q&A here.

Want to see this answer and more?

Solutions are written by subject experts who are available 24/7. Questions are typically answered within 1 hour.*

See Solution
*Response times may vary by subject and question.
Tagged in

Business

Finance

Capital Budgeting

Related Finance Q&A

Find answers to questions asked by student like you

Show more Q&A add
question_answer

Q: You have just been hired as a financial analyst for Barrington Industries. Unfortunately, company he...

A: Computation of ending cash balance of the firm:The ending cash balance is $250,000.Excel spread shee...

question_answer

Q: YIELD TO CALL It is now January 1, 2018, and you are considering the purchase of an outstanding bond...

A: a). Computation of yield to maturity:Hence, the yield to maturity is 6.50%. 

question_answer

Q: Universal Forest’s current stock price is $64.00 and it is likely to pay a $0.47 dividend next year....

A: Required Return: It is the rate of return which is the least satisfactory return an investor may ant...

question_answer

Q: This question is related to Chapter 18 of Berk & Demarzo "Capital Budgeting and Valuation with L...

A: With constant debt-equity ratioAdjusted Present Value is used to value a firm’s total investment by ...

question_answer

Q: negative net exposure C. a fully balanced position. D. zero net exposure. 12. The levels of foreign ...

A: The levels of foreign currency assets and liabilities at banks hove increased in recent years, and t...

question_answer

Q: As fixed operating costs increase and all other factors are held constant, ________.   the degre...

A: The Degree of Operating Leverage (DOL) is a multiple that makes measurement on the amount of operati...

question_answer

Q: Skolits Corp. issued 15-year bonds 2 years ago at a coupon rate of 7.6 percent. The bonds make semia...

A: Calculate the yield to maturity (YTM) as follows:MS - Excel --> Formulas --> Financials -->...

question_answer

Q: Brandt Enterprises is expecting rapid growth for the next 2 years. They JUST PAID divident (D0) of $...

A: Hence, Dividend after year 1 (D1) is 1.875, which is determined by multiplying the initial dividend ...

question_answer

Q: wild flowers express has a debt equity ratio of .60. the pre tax cost of debt is 9% while the unleve...

A: Computation of levered equity cost:Hence, the levered equity cost is 15.98%.