Net Present Value Essay

744 Words 3 Pages
Net present value (NPV)
The net present value method is the delegate of a discounted cash flow method and the dynamic investment appraisal (Rudolf, 2008). It stand for the value increase to the business by the investment or the project ("Why Net Present Value Leads to Better Investment Decisions than Other Criteria", n.d.). It is evaluation is an effective method of economic evaluation of investments. (Erményi, n.d.). This measure demonstrate the difference between the costs and the benefits while considering the discounted values of them (Erményi, n.d.). The project’s contribution toward the total value of a firm which means the positive contribution from a project will directly add value to the firm, or vice versa. It represents the increase
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Thus, it clearly measures the increase in market value or wealth created by the project. The NPV of a project is not affected by "packaging" it with another project. That is NPV(A+B) = NPV(A) + NPV(B). The net present value is the only measure that provides the theoretically correct measure of a project’s value ("Why Net Present Value Leads to Better Investment Decisions than Other Criteria", n.d.). Besides, there are many advantages of net present value method. NPV persistent with shareholder wealth magnification, investments are indicated in higher stock prices and it increase net present values produced (Jory, Benamraoui, Boojihawon, and Madichie, 2016). Net present value method measures cash increases from an investment (Goh, Kuo, Ong, & Rodrigues, 2009). NPV also recognize as the best method for investment project valuation (Goh, Kuo, Ong, & Rodrigues, 2009). It tells whether the investment will increase the firm’s value (Peterson-Drake, n.d.). Indicates whether a proposed project will yield the investor’s required rate of return (Jory, Benamraoui, Boojihawon, & Madichie, 2016). It is consistent with the theory of wealth maximization (Imegi, & Nwokoye, 2015). Moreover, net present value method considers all the cash flows, it makes use of all the project cash flows, does not ignore any period in the project life or any cash flows (Peterson-Drake, n.d; Imegi, & Nwokoye, 2015; Jory, Benamraoui, Boojihawon, & Madichie, 2016; Awomewe, & Ogundele, 2008) It considers mindful of the time value of money and consider both magnitude and timing of cash flows. (Imegi, & Nwokoye, 2015; "Contemporary Perspectives on Accounting", 2008; Awomewe, & Ogundele, 2008). Use cash flows instead of the arbitrary accounting profit

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