Net present value
In finance, the net present value (NPV) or net present worth (NPW) of a time series of cash flows, both incoming and outgoing, is defined as the sum of the present values (PVs) of the individual cash flows. In case when all future cash flows are incoming (such as coupons and principal of a bond) and the only outflow of cash is the purchase price, the NPV is simply the PV of future cash flows minus the purchase price (which is its own PV). NPV is a central tool in discounted cash flow (DCF) analysis, and is a standard method for using the time value of money to appraise long-term projects. Used for capital budgeting, and widely throughout economics, finance, and accounting, it measures the excess or shortfall of cash flows, in present value terms, once financing charges are met. The NPV of a sequence of cash flows takes as input the cash flows and a discount rate or discount curve and outputting a price; the converse process in DCF analysis, taking as input a sequence of cash flows and a price and inferring as output a discount rate (the discount rate which would yield the given price as NPV) is called the yield, and is more widely used in bond trading. Formula

Each cash inflow/outflow is discounted back to its present value (PV). Then they are summed. Therefore NPV is the sum of all terms, ,
where
t - the time of the cash flow
i - the discount rate (the rate of return that could be earned on an investment in the financial markets with similar risk.) Rt - the net cash flow (the amount of cash, inflow minus outflow) at time t (for educational purposes, R0 is commonly placed to the left of the sum to emphasize its role as (minus the) investment. The result of this formula if multiplied with the Annual Net cash in-flows and reduced by Initial Cash outlay will be the present value but in case where the cash flows are not equal in amount then the previous formula will be used to determine the present value of each cash flow separately. Any cash...

...corporate finance.
3. Which of the following correctly completes the next sentence? The value of any asset is the presentvalue of all future
a. 0 profits it is expected to provide
b. 0 revenue it is expected to provide
c. 0 net working capital it is expected to provide
d. 0 cash flows it is expected to provide
Objective: Compare and contrast the market value of an asset or liability from the book...

...Examples Of NetPresentValue (NPV), ROI and
Payback Analysis
Introduction
Terms and Definitions
NetPresentValue - Method of calculating the expected net monetary gain or loss from a project by discounting all expected future cash inflows and outflows to the present point in time.
Discount Rate - Also known...

...time value of money.
3) All projects can have only one value for NPV and one value for IRR.
4) The NPV technique cannot provide information on how acquiring the project will contribute to shareholders’ wealth.
Explanation: NPV calculates presentvalue of investment and opportunity cost of capital and IRR takes time value of money and cost of capital into consideration as well.
F) Which of the following...

...Initial investment
An initial investment is the money a business owner needs to start up a firm. It might include the business owner's own money, money borrowed from an array of sources including family and friends or banks, or capital raised from investors. The term initial investment is also used as the money a business owner uses to invest in a capital investment venture such as a piece of equipment or a building.
IRR
The higher a projects internal rate of return,...

...promptly recover its cost? b Will an investment generate an acceptable rate of return? c Will an investment have a positive netpresentvalue? d Will an investment have an adverse effect on the environment? 3 Which of the following is not considered when using the payback period to evaluate an investment? a The profitability of the investment over its entire life. b The annual net cash flow of the investment. c The cost of the...

...that inflow are reinvested at 80 percent of the internal rate of return
This is a correct answer
It is the difference in the reinvestment assumptions that can be significant in determining when to use the presentvalue or internal rate of return methods.
Under the netpresentvalue method, cash flows are assumed to be reinvested at the firm's weighted average cost of capital
Points earned on this question: 1...

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Week 5 – Homework Answers
P8-1. Suppose that a 30-year U.S. Treasury bond offers a 4% coupon rate, paid semiannually. The market price of the bond is $1,000, equal to its par value.
a. What is the payback period for this bond?
b. With such a long payback period, is the bond a bad investment?
c. What is the discounted payback period for the bond assuming its 4% coupon rate is the required return? What general principle does this example illustrate regarding a project’s...

...Essay.
NetPresentvalue is the difference between an investment’s market value and its cost. For an example, you invest 100 dollars (Cost) into a lemonade stand but you receive 50 dollars (Market Value) of cash inflow. Another would be you buy a house for 50,000(Cost) But you sell it for 75,000(Market Value). Your netpresentvalue An Investment should be...