Question
In: Finance
Explain the reasons why the Net Present Value method is the most superior method of project...
Explain the reasons why the Net Present Value method is the most superior method of project evaluation.
Solutions
Expert Solution
NPV is superior method than all other methods in project evaluation due to the fact that NPV can handle projects with different sizes and projects with varying period of time.
NPV method employs more realistic reinvestment rate which is close to cost of capital.
NPV uses time value of money unlike payback period method.
NPV provides how much profit will generate by the project in real terms or exact numbers.
Hence NPV is superior than all other methods in capital project evaluation.
jeff jeffy answered 1 year agoRelated Solutions
Most financial experts will agree that net present value is the best capital budgeting method. Explain...
Most financial experts will agree that net present value is the
best capital budgeting method. Explain why this is so and also
explain how even NPV can be unreliable when projecting project
results. Also Given the goal of maximization of firm value and
shareholder wealth, we have stressed the importance of net present
value (NPV). And yet, many financial decision-makers at some of the
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Please explain why the net present value (NPV) method is preferred over the payback method when...
Please explain why the net present value (NPV) method is
preferred over the payback method when evaluating alternative
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Please explain why the net present value (NPV) method is preferred over the payback method when...
Please explain why the net present value (NPV) method is
preferred over the payback method when evaluating alternative
capital budgeting projects.
discuss the reasons why net present value is used to make investment decisions.
discuss the reasons why net present value is used to make
investment decisions.
Net Present Value Method, An index computed by dividing the total present value of the net...
Net Present Value Method, An index computed by dividing the
total present value of the net cash flow to be received from a
proposed capital investment by the amount to be invested.Present
Value Index, and Analysis for a service company
Continental Railroad Company is evaluating three capital
investment proposals by using the net present value method.
Relevant data related to the proposals are summarized as
follows:
Maintenance
Equipment
Ramp
Facilities
Computer
Network
Amount to be invested
$679,831
$436,634
$209,605
Annual...
Net present value (NPV)The net present value (NPV) rule is considered one of the most...
Net present value (NPV)The net present value (NPV) rule is considered one of the most
common and preferred criteria that generally lead to good
investment decisions.Consider this case:Suppose Pheasant Pharmaceuticals is evaluating a proposed
capital budgeting project (project Beta) that will require an
initial investment of $2,225,000. The project is expected to
generate the following net cash flows:YearCash FlowYear 1$275,000Year 2$475,000Year 3$450,000Year 4$450,000Pheasant Pharmaceuticals’s weighted average cost of capital is
8%, and project Beta has the same risk as the...
Net Present Value Method, A method of analysis of proposed capital investments that uses present value...
Net Present Value Method, A method of analysis of proposed
capital investments that uses present value concepts to compute the
rate of return from the net cash flows expected from the
investment.Internal Rate of Return Method, and Analysis
The management of Quest Media Inc. is considering two capital
investment projects. The estimated net cash flows from each project
are as follows:
Year
Radio Station
TV Station
1
$360,000
$760,000
2
360,000
760,000
3
360,000
760,000
4
360,000
760,000
Present Value...
Net Present Value Method, A method of analysis of proposed capital investments that uses present value...
Net Present Value Method, A method of analysis of proposed
capital investments that uses present value concepts to compute the
rate of return from the net cash flows expected from the
investment.Internal Rate of Return Method, and Analysis
The management of Quest Media Inc. is considering two capital
investment projects. The estimated net cash flows from each project
are as follows:
Year
Radio Station
TV Station
1
$360,000
$760,000
2
360,000
760,000
3
360,000
760,000
4
360,000
760,000
Present Value...
evaluate the following project using the Net Present Value method. year cash flo
evaluate the following project using the Net Present Value
method.
year
cash flow
0
investment
325,000
1
income
90,000
2 add investment 20,000
3
income
140,000
4
income
125,000
discount
rate
9%
NPV ____________ Go or
No Go ___________
compute operating cash flow using three of the four methods
Sales 400,000
Dep. 35,000
cost 250,000
Tax Rate 35%
The Net Present Value method of project evaluation is preferred over the Internal Rate of Return...
The Net Present Value method of project evaluation is preferred
over the Internal Rate of Return method because the Net Present
Value method:
a. Considers the time value money where IRR does not.
b. Considers the risk of the project where the Internal Rate of
Return does not.
c. Includes all the cash flows in its decision where IRR does
not.
d. Considers the timing of the cash flows where the Internal
Rate of Return does not.
e. Assumes a...
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