The document discusses net present value (NPV) as a capital budgeting technique that discounts cash inflows and outflows to account for the time value of money. NPV is calculated as the present value of cash inflows minus the present value of cash outflows. If NPV is positive, the investment proposal is acceptable as it adds value. If NPV is negative, the proposal is rejected. The example calculates NPV of $283.51 for an investment of $9,000 with expected cash flows over four years, indicating it is a positive NPV and acceptable project.

2. Cash inflow refers to a business or
company's sources of money or income
Cash outflow refers to a business
or company's expenses

3. Net present value method (also
known as discounted cash flow
method) is a popular capital
budgeting technique that takes into
account the time value of money.

4. Net present value is the difference
between the present value of cash
inflows and the present value of cash
outflows that occur as a result of
undertaking an investment project.
It may be positive, zero or negative.

5. If present value of cash inflows is greater than the
present value of the cash outflows, the net present
value is said to be positive and the investment
proposal is considered to be acceptable.
If present value of cash inflow is less than present
value of cash outflow, the net present value is said
to be negative and the investment proposal is
rejected.

6. If present value of cash inflow is equal to present
value of cash outflow, the net present value is said
to be zero and the investment proposal is
considered to be acceptable.

8. A rate of return is the gain or loss on an
investment over a specified time period,
expressed as a percentage of the
investment's cost.

9. Assume a company is planning to invest $9000 in a
project today.
The project is expected to have a life of four years.
The expected cash flows at the end of each of the
next four years are $2000, $3000, $3000 & $4000.

16. NPV is Positive

17. A Positive NPV means the combined PV of all
cash inflows exceeds the PV of cash outflows.
In our Example the NPV of $283.51 suggests
that the combined PV of all cash inflows
exceeds the PV of cash outflows by $283.51
This project is an acceptable one since it adds
$283.51 to the value of the company.