What discount rate is most appropriate for net present calculations of large-scale projects? Of small projects?...

What discount rate is most appropriate for net present calculations of large-scale projects? Of small projects? Of the quantity of inventories to hold?

Expert Solution

The net present value (NPV) is the most appropriate for net present calculation of projects.

Net present value : is the present value of cash flow on a project or investment. It is calculated by subtraction present value of cash inflow from present value of cash outflow. It shows the profitability of an investment on a project.

If NPV is positive or greater than zero than the investor should choose the project and if NPV is negative or less than zero then he should not choose the project.

Large – scale projects: if the NVP of a large scale project is positive and higher in number that means the project is profitable as the future returns on the projects will be high so the project should be selected.

Small – scale projects: If the value of NPV is positive that means we can select the small scale project.

The quantity of inventories to hold: it is also determined by the high value of NPV. If the value of NPV is positive and high than we can increase the quantity of inventories to hold and if value is negative and less investor should decrease the quantity of inventories to hold.

Rahul Sunny answered 2 years ago

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