Net Present Value
Net Present Value (NPV) is used in capital budgeting to analyze the profitability of an investment or project. NPV is found by subtracting the present value of the after-tax outflows from the present value of the after-tax inflows. Investments with a positive NPV increase shareholder value and those with a negative NPV reduce shareholder value. In order to compute the NPV for Worldwide Paper Company, we have to calculate the cash flow in capital budgeting of the project as below. | | 2007| 2008| 2009| 2010| 2011| 2012| 2013| Terminal Cash flow| A| Fixed Assets| | | | | | | | |

| Cost of Investment| -$16| -$2| | | | | | |
| Sales of Fixed Asset| | | | | | | | $1.08|
B| Working Capital| | | | | | | | |
| Incremental Sales| | $4| $6| | | | | |
| Change in Working Capital (10%)| | $0.4| $0.6| | | | | | | Cash flow of investment in working capital| | -$0.4| -$0.6| | | | | $1.0| C| Operating Cash Flow| | | | | | | | |

| Revenue of Investment| | $4| $10| $10| $10| $10| $10| | -| Cost of Good Sold (75%)| | -$3| -$7.5| -$7.5| -$7.5| -$7.5| -$7.5| | -| SG&A expenses (5%)| | -$0.2| -$0.5| -$0.5| -$0.5| -$0.5| -$0.5| | | Net Income| | $0.8| $2| $2| $2| $2| $2| |

+| Operating Saving| | $2| $3.5| $3.5| $3.5| $3.5| $3.5| | -| Depreciation| | $3| $3| $3| $3| $3| $3| |
| EBIT| | -$0.2| $2.5| $2.5| $2.5| $2.5| $2.5| |
-| Tax (40%)| | -$0.08| $1| $1| $1| $1| $1| |
| EAT| | -$0.12| $1.5| $1.5| $1.5| $1.5| $1.5| |
+| Add back Depreciation| | $3| $3| $3| $3| $3| $3| | | Total Operating Cash Flow| | $2.88| $4.5| $4.5| $4.5| $4.5| $4.5| | D| Total Project Cash Flow (A+B+C)| -$16| $0.48| $3.9| $4.5| $4.5| $4.5| $4.5| $2.08| Figure 1: Worldwide Paper Company Cash Flow in Capital Budgeting (in millions). As we can see in figure...

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Janice Miller
American Intercontinental University
Managerial Accounting 310
Instructor: Matt Keogh
Introduction
“Net Present Value (NPV) is the present value of the net cash inflows generated by a project including salvage value, if any, less the initial investment on the project,” (Irfanullah, Jan., 2013). It is preferred as one of the most reliable measures employed in capital budgeting since it accounts for the time value of money as it uses the discounted...

...value (NPV) and Internal rate of return (IRR) are used to determine whether to accept a project or not.Net Present Value (NPV)Net present value is the difference between the present value of cash inflows and the present value of cash outflows. It is used in capital budgeting to analyze the profitability of an investment or project.
NPV= sum[CFt/(1+r)t]-C0
CFt– cash flow in the time t
C0 – initial investment
r – periodic interest rate...

...assess whether it is viable to invest or not the NPV technique can be used to compare the present value of returns and costs. If the NPV is negative it implies that costs exceed returns and hence it would not be advisable to invest in such projects. There are also other investment appraisal techniques that are employed apart from the NPV; these are the pay back method, accounting rate of return and internal rate of return method.
Net present value...

...ASSIGNMENT TOPIC:
“THE ADVANTAGES AND DISADVANTAGES OF USINFG NPV (NET PRESENT VALUE) AND IRR (INTERNAL RATE OF RETURN)”
NPV (NET PRESENT VALUE)
The difference between the present value of cash inflows and the present value of cash outflows. NPV is used in capital budgeting to analyze the profitability of an investment or project. NPV analysis is sensitive to the reliability of future cash inflows that an investment or project will...

...Net Present Value and Internal Rate of Return
by Harold Bierman, Jr
Executive Summary
• • • Net present value (NPV) and internal rate of return (IRR) are two very practical discounted cash flow (DCF) calculations used for making capital budgeting decisions. NPV and IRR lead to the same decisions with investments that are independent. With mutually exclusive investments, the NPV method is easier to use and more reliable.
Introduction
To this...

...NPV is short for Net Present Value and it makes difference between the present value and cost of a project. In addition, NPV takes into account all cash flows through out the whole life of the projects, as well as the time value of money. And it compares like with like as all inflows and outflows are discounted to today¡¯s date. Also, the cost of capital is very unlikely to be changed over a period of time. To judge if the NPV is good, we should see...

...Examples Of Net Present Value (NPV), ROI and
Payback Analysis
Introduction
Terms and Definitions
Net Present Value - 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 as the hurdle rate or required rate of return, is the rate that a project must achieve in order to...

...How do the results of the NPV technique relate to the goal of maximizing shareholder wealth?
The NPV technique measures the present value of the future cash flows that a project will produce. A positive NPV means that the investment should increase the value of the firm and lead to maximizing shareholder wealth. A positive NPV project provides a return that is more than enough to compensate for the required return on the investment....