   Chapter 15, Problem 8CDQ

Chapter
Section
Textbook Problem

A net present value analysis used to evaluatea proposed equipment acquisition indicated a$115,000 net present value. What is the meaningof the$115,000 as it relates to the desirability ofthe proposal?

To determine

Concept Introduction:

NPV:

Net present value (NPV) is the method to evaluate the project feasibility. This method calculates the present value of cash inflows and outflows, and then calculates the net present value of the investment. A project should be accepted if it has a positive NPV. The formula to calculate the NPV is as follows:

NPV = Present value of cash inflows  Present value of cash out flows

To Indicate:

The meaning of the Net present value amount

Explanation

Net present value (NPV) is the method to evaluate the project feasibility. This method calculates the present value of cash inflows and outflows, and then calculates the net present value of the investment. A project should be accepted if it has a positive NPV. The formula to calculate the NPV is as follows:

NPV = Present value of cash in

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