Net Present Value

Net Present Value - Net Present Value (NPV) Net present...

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Net Present Value (NPV) Net present value is one of the most reliable measure used in capital budgeting. It is the present value of net cash inflows generated by a project less the initial investment on the project. The use of discounted cash inflows means that net present value accounts for time value of money . Before calculating NPV, a target rate of return is set which is used to discount the net cash inflows from a project. Calculation Methods and Formulas The major component of NPV is the present value of net cash inflows which may be even (i.e. equal cash inflows in different periods) or uneven (i.e. different cash flows in different periods). Where net cash inflows are even, present value can be easily calculated by using the present value formula of annuity. However if net cash inflows are uneven we need to calculate the present value of each individual cash inflow separately. Thus we have two formulas for the calculating of NPV: When cash inflows are Even: NPV = R × 1 − ( 1 + i )
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This note was uploaded on 04/03/2012 for the course ACCT 275 taught by Professor Stangota during the Spring '09 term at Rutgers.

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Net Present Value - Net Present Value (NPV) Net present...

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