PRESENT VALUE

Present Value

Present Value

PART I

A

Value

7000

1.08

1.03

PV (Today)

$6,481.48

PV (Today)

6796.116505

B

A

B

Value

4000

9600

1.05

1.05

PV (Today)

3809.52381

9142.857

C

1

42000000

2

62000000

3

99000000

PV 8%

$170,633,287.61

PV 4%

$302,838,821.06

PV 6%

$499,528,558.74

Internal Rate of Return (IRR) and Net Present Value (NPV) are both powerful tools used in business to determine whether or not to invest in a particular project; both methods have its pros and cons. If given a choice I would choose NPV, because of the potential to anticipate profitability.

As it is assumed that the objective of a firm is to create as much shareholder wealth as possible for its owners through the efficient use of resources, the preferred method in determining whether or not to invest in a project is NPV. The reason for this is that NPV takes into account all the costs and benefits of an investment opportunity, making a logical allowance for the time factor. Generally speaking any appraisal that returns a positive NPV result is a worthwhile investment. This means finding the NPV of a business will have a direct bearing on shareholder wealth. snare present worth is a way of matching the worth of cash now with the worth of cash in the future. A dollar today is worth more than a dollar in the future, because inflation erodes the buying power of the future cash, while cash accessible today can be bought into and augment.

There are two advantages NPV as a capital expenditure appraisal technique it accurately recognizes the time value of money for all expenditures, regardless of the exact time at which they are made or received it enables alternative proposals to be ranked in order of attractiveness it recognizes the time value of money by converting future expenditures and receipts to their corresponding present value on investment criteria, taking account of the exact date on which they are expected to be made or received.

One can ...