By: Melvin Davis
Applied Managerial Finance
Phase 3 discussion board
Dr. Bilal Makkawi
April 24, 2013
After meeting with the CEO and the VP of the company I have been assigned the task to explain and define certain material for the company as the Vice President of finance. In order for everyone to have knowledge of what is about to take place in the upcoming weeks I will be defining and explaining some very vital information on Net Present Value (NPV), the Internal Rate of Return (IRR) so that these methodologies could be used effectively throughout the company. Net Present Value (NPV)
The basic definition for the net present value is the capital budgeting to see how successful a company or organization is. This particular technique is really used to make certain investments decisions when it comes to a certain project because it will give the accurate change in the value of the company when it chooses to take on certain objectives. What is meant by this is by estimating the present value of the project and expected profits from the project we can evenly compare the projects financial outlook and a sound decision can be made as to whether the project will be profitable for the company to consider taking on ("Net Present Value," n.d.) For example if Apex were to make an investment of $10,000 for a mission, and the reason we were making the investment in the beginning because we were expecting to get a positive cash flow of $2,000 over the next 4 years, and our base discounted price is 10%. Then if we were to use the NPV chart the answer for year 1 would be $188.20, and for year 2 it would be $3471, and for year 3 it would be $4973.80. The basic formula for NPV would be Y0: $10,000 Y1:$1818.20 Y2:$3471 NPV=$10,000+$1818.20+$3471=$263 Internal Rate of Return (IRR)
The Internal Rate of Return is properly used when seen and worked throughout the capital budgeting decisions of the company. The IRR is mainly the rate...