As written, the Net Present Value formula does what: discounts all previous cash
ID: 2825296 • Letter: A
Question
As written, the Net Present Value formula does what:
discounts all previous cash flows by a discount rate, i.
discounts all future cash flows by a discount rate, i.
compounds all future cash flows by a compound rate, i.
solves the world's problems
compounds all past cash flows by a compound rate, i.
discounts all previous cash flows by a discount rate, i.
discounts all future cash flows by a discount rate, i.
compounds all future cash flows by a compound rate, i.
solves the world's problems
compounds all past cash flows by a compound rate, i.
Explanation / Answer
The Answer is “ Discounts all future cash flows by a discount rate, i.”
- The Net Present Value [NPV] of an investment proposal is determined by subtracting the Present Value of outflows from the Total present value of future annual cash flows
- Net Present Value [NPV] = Present Value of Annual future cash inflows – Present Value of outflows
- The Present Value of total annual cash inflows is calculated by discounting the future cash flows at the discount rate, “i”
- The Main objective of a capital budgeting decision technique is to make a decision with respect to a whether to buy an assets or to make a repair to old assets or the junk assets.
- The most commonly used capital budgeting technique is the Net Present Value [NPV] method. In this NPV method, the investment proposal shall be acceptable if the Net Present Value is positive, or else it rejected.
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