Asked by Desiree Jarvis on Apr 26, 2024
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If in evaluating a proposal by use of the net present value method there is an excess of the present value of future cash inflows over the amount to be invested, the rate of return on the proposal exceeds the rate used in the analysis.
Net Present Value
A financial metric used to evaluate the profitability of an investment, calculating the difference between the present value of cash inflows and the present value of cash outflows over time.
Future Cash Inflows
Projected incoming cash to a business from its operations, investments, or financing activities.
Rate of Return
The gain or loss on an investment over a specified period, expressed as a percentage of the investment’s cost.
- Comprehend the methodology of net present value analysis and its consequences for capital expenditure.
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Learning Objectives
- Comprehend the methodology of net present value analysis and its consequences for capital expenditure.
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