Presentation Case 4 handout class

# Presentation Case 4 handout class - Cassie Murphy and Neha...

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Cassie Murphy and Neha Bedi Presentation Case 4 – Net Present Value (NPV) Mutually exclusive projects when the acceptance to do or participate in one project eliminates the possibility of the other project being accepted or undertaken as well. Net Present Value (NPV) The difference between the initial costs of an investment project, and the sum of current values of projected cash inflows. It calculates future values in today’s dollars. Used to determine whether an investment is likely to offer good returns. Basically, the NPV is higher if: the income amounts (cash flows in) are larger, or if the discount rate is lower. The NPV is lower if the income amounts (cash flows in) are smaller, or if the discount rate is higher Formula: Where: Ct = the net cash flow (the amount of cash, inflow minus outflow) at time t r = discount rate (interest rate) C0 = initial cost of investment t = time of cash flow NPV > 0, then the project is worthwhile pursuing. NPV < 0, it should not be undertaken as it represents a return less than the discount

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## This note was uploaded on 11/09/2011 for the course BUS ECO 101 taught by Professor Nguyen during the Three '11 term at Monash.

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Presentation Case 4 handout class - Cassie Murphy and Neha...

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