19. What is the daily net present value of the current trade credit policy? Assume that...

19. What is the daily net present value of the current trade credit policy? Assume that the variable costs are paid upfront while the costs of collections occur when the payment is received from the customer.

Expert Solution

Net present value (NPV) is a method used to determine the current value of all future cash flows generated by a project, including the initial capital investment. It is widely used in capital budgeting to establish which projects are likely to turn the greatest profit.

The formula for NPV varies depending on the number and consistency of future cash flows. If there’s one cash flow from a project that will be paid one year from now, the calculation for the net present value is as follows.

Net present value, or NPV, is used to calculate today’s value of a future stream of payments.

If the NPV of a project or investment is positive, it means that the discounted present value of all future cash flows related to that project or investment will be positive, and therefore attractive.

To calculate NPV you need to estimate future cash flows for each period and determine the correct discount rate.

In most cases, a financial analyst needs to calculate the net present value of a series of cash flows, not just one individual cash flow. The formula works in the same way, however, each cash flow has to be discounted individually, and then all of them are added together.

ekkarill92 answered 1 year ago

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