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Net Present Value (NPV) is a fundamental capital budgeting tool used to evaluate the profitability of a project or investment. It calculates the difference between the present value of future cash inflows and outflows, accounting for the time value of money. The purpose of NPV is to determine whether the projected earnings from an investment exceed its costs when discounted to their current value.

Estimating the timing and amount of future cash flows and applying a discount rate while calculating NPV is essential, as it typically reflects the minimum acceptable rate of return or the company's cost of capital. The discount rate can also represent the returns available from alternative investments with comparable risk.

If the NPV is positive, the project's rate of return is greater than the discount rate, indicating a profitable investment. Conversely, a negative NPV suggests that the investment would underperform compared to alternative options.

NPV is valuable because it quantifies both profitability and risk in present-day terms, allowing decision-makers to compare different investment opportunities. By integrating these future cash flows into a single value, NPV helps businesses make more informed financial decisions, ensuring the most efficient use of capital.

Bölümden 7:

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7.9 : Net Present Value

Capital Budgeting

244 Görüntüleme Sayısı

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7.1 : Introduction to Capital Budgeting

Capital Budgeting

190 Görüntüleme Sayısı

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7.2 : Basics of Investment Decision-making

Capital Budgeting

118 Görüntüleme Sayısı

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7.3 : Importance of Capital Budgeting

Capital Budgeting

88 Görüntüleme Sayısı

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7.4 : Advantages and Limitations of Capital Budgeting

Capital Budgeting

270 Görüntüleme Sayısı

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7.5 : Capital Budgeting Techniques

Capital Budgeting

131 Görüntüleme Sayısı

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7.6 : Payback

Capital Budgeting

79 Görüntüleme Sayısı

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7.7 : Payback Period

Capital Budgeting

45 Görüntüleme Sayısı

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7.8 : Discounted Payback Period

Capital Budgeting

63 Görüntüleme Sayısı

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7.10 : Net Present Value Method

Capital Budgeting

129 Görüntüleme Sayısı

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7.11 : Decision-making Through Net Present Value

Capital Budgeting

50 Görüntüleme Sayısı

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7.12 : Internal Rate of Return

Capital Budgeting

139 Görüntüleme Sayısı

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7.13 : Calculating Internal Rate of Return

Capital Budgeting

32 Görüntüleme Sayısı

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7.14 : Decision-making Through Internal Rate of Return

Capital Budgeting

38 Görüntüleme Sayısı

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7.15 : Average Rate of Return

Capital Budgeting

36 Görüntüleme Sayısı

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