Npv

NPV is short for Net Present Value and it makes difference between the present value and cost of a project. In addition, NPV takes into account all cash flows through out the whole life of the projects, as well as the time value of money. And it compares like with like as all inflows and outflows are discounted to todayЎЇs date. Also, the cost of capital is very unlikely to be changed over a period of time. To judge if the NPV is good, we should see the value of it, and the rule is the high the better. But, there is a rule for NPV, which is When NPV is greater than 0 we accept it, when the NPV is less than 0 we reject it. What is more, the net present value rule states that managers increase shareholdersЎЇ wealth by accepting all projects that are worth more than they cost. Therefore, they should accept all projects with a positive net present value. When choosing between mutually exclusive projects, the decision rule is simple. Calculate the NPV of each project and, from those options that have a positive NPV, choose the one whose NPV is highest. In