Question

EXPLAIN: What past or present life experiences of yours could have benefited from NPV or IRR analysis? How can the techniques and methods of financial managers extend beyond the corporation and be applied in personal life?

Answer 1

The Net Present Value is the amount by which the present value of the cash inflows exceeds the present value of the cash outflows. Conversely, if the present value of the cash outflows exceeds the present value of the cash inflows, the Net Present Value is negative. From a different perspective, a positive (negative) Net Present Value means that the rate of return on the capital investment is greater (less) than the discount rate used in the analysis.

IRR is the discount arte that akes the NPV equal to zero.

In my present day life I had to decide whether we should procure the new software or continue with our old software for managing our database. NPV helped me calculate the profit I would achieve if we switch to the new database software and I proposed the same NPV calculation to my managers which helped me save company's time as well as increase its productivity.

Techniques and methods of financial managers can be extended beyond the corporation and be applied in personal life for example while deciding whether to apply in FD or invest in mutual funds a person can calculate the NPV and decide whether he should even invest or rather just keep it in his savings account.