Net Present Value (NPV)
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5 Terms
What is Investment Appraisal?
The process of analysing whether investment projects are worthwhile
What is Net Present Value?
Net present value (‘NPV’) calculates the monetary value now of a project’s future cash flows
What is the time value of money?
Better to receive cash now rather than in the future
Future cash flows are worth less
Use discount factors to bring cash flows back to their ‘present value’
Relevant discount factor determined by the required rate of return
What is the calculation of the present value of a future cash flow?
Better to receive cash now rather than in the future
Future cash flows are worth less
Use discount factors to bring cash flows back to their ‘present value’
Relevant discount factor determined by the required rate of return
What is an example of calculating NPV?
Net present value (‘NPC’) calculates the monetary value now of a project’s future cash flows
Add together all the present values of future cash flows
Flashcards (172)