Net present value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows over a period of time. It may be positive, zero or negative.
NPV is used in capital budgeting and investment planning to analyze the profitability of a projected investment or project.
Also known as sophisticated technique for capital budgeting exercise.
It accounts for time value of money by using discounted cash flows in the calculation.
Describes in detail the steps involved in the calculation of Internal Rate of Return. Useful to students of Under graduate, post graduate and professional course students pursuing course in finance
Capital Employed is represented as total assets minus current liabilities. In other words, it is the value of the assets that contribute to a company’s ability to generate revenue
Net present value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows over a period of time. It may be positive, zero or negative.
NPV is used in capital budgeting and investment planning to analyze the profitability of a projected investment or project.
Also known as sophisticated technique for capital budgeting exercise.
It accounts for time value of money by using discounted cash flows in the calculation.
Describes in detail the steps involved in the calculation of Internal Rate of Return. Useful to students of Under graduate, post graduate and professional course students pursuing course in finance
Capital Employed is represented as total assets minus current liabilities. In other words, it is the value of the assets that contribute to a company’s ability to generate revenue
Discusses various risks involved in capital budgeting - useful to the students of under graduate, post graduate and professional course students in finance and management
Bill discounting is the process of lending money against invoices. It is a capital-raising tool that can be used by small and medium enterprises to fund their day-to-day operations. Bill discounting helps businesses raise capital without any upfront fees or collateral requirements, making it an ideal source of working capital for SMEs.
Introduction to ratio analysis. This slide show is an analysis of accounting ratios to introduce students and those interested in taking accounting as their future career into ratio analysis. It's been simplified and made concise. The writer is a lecturer in engineering and a financial engineer. You can always follow the writer on LinkedIn, Twitter of Facebook. You comments are also welcome for future work.
Discusses various risks involved in capital budgeting - useful to the students of under graduate, post graduate and professional course students in finance and management
Bill discounting is the process of lending money against invoices. It is a capital-raising tool that can be used by small and medium enterprises to fund their day-to-day operations. Bill discounting helps businesses raise capital without any upfront fees or collateral requirements, making it an ideal source of working capital for SMEs.
Introduction to ratio analysis. This slide show is an analysis of accounting ratios to introduce students and those interested in taking accounting as their future career into ratio analysis. It's been simplified and made concise. The writer is a lecturer in engineering and a financial engineer. You can always follow the writer on LinkedIn, Twitter of Facebook. You comments are also welcome for future work.
Schneider, Arnold, (2012) Managerial Accounting, United States, .docxanhlodge
Schneider, Arnold, (2012) Managerial Accounting, United States, Bridgepoint Education Inc
The Evaluation Methods
The evaluation methods discussed here are:
1.
Present value methods (also called discounted cash-flow methods).
(a)
Net present value method (NPV).
(b)
Internal rate of return method (IRR).
2.
Payback period method.
3.
Accounting rate of return method.
Nearly all managerial accountants agree that methods using present value (Methods 1a and 1b) give the best assessment of long-terminvestments. Methods that do not involve the time value of money (Methods 2 and 3) have serious flaws; however, since they are commonlyused for investment evaluation, their strengths and weaknesses are discussed.
Net Present Value Method
The net present value (NPV) method includes the time value of money by using an interest rate that represents the desired rate of return or, atleast, sets a minimum acceptable rate of return. The decision rule is:
If the present value of incremental net cash inflows is greater than the incremental
investment net cash outflow, approve the project.
Using Tables 1 and 2 found at the end of this chapter, the net cash flows for each year are brought back (i.e., discounted) to Year 0 andsummed for all years. An interest rate must be specified. This rate is often viewed as the cost of funds needed to finance the project and is theminimum acceptable rate of return. To discount the cash flows, we use the interest rate and the years that the cash flows occur to obtain theappropriate present value factors from the present value tables. A portion of Table 1 appears below showing the present value factors (theshaded numbers), corresponding to an interest rate of 12 percent, for each year during the Clairmont Timepieces project's life.
Periods
(n)
1%
2%
4%
5%
6%
8%
10%
12%
14%
15%
16%
0
1.000
1.000
1.000
1.000
1.000
1.000
1.000
1.000
1.000
1.000
1.000
1
0.990
0.980
0.962
0.952
0.943
0.926
0.909
0.893
0.877
0.870
0.862
2
0.980
0.961
0.925
0.907
0.890
0.857
0.826
0.797
0.769
0.756
0.743
3
0.971
0.942
0.889
0.864
0.840
0.794
0.751
0.712
0.675
0.658
0.641
4
0.961
0.924
0.855
0.823
0.792
0.735
0.683
0.636
0.592
0.572
0.552
5
0.951
0.906
0.822
0.784
0.747
0.681
0.621
0.567
0.519
0.497
0.476
6
0.942
0.888
0.790
0.746
0.705
0.630
0.564
0.507
0.456
0.432
0.410
7
0.933
0.871
0.760
0.711
0.665
0.583
0.513
0.452
0.400
0.376
0.354
8
0.923
0.853
0.731
0.677
0.627
0.540
0.467
0.404
0.351
0.327
0.305
9
0.914
0.837
0.703
0.645
0.592
0.500
0.424
0.361
0.308
0.284
0.263
10
0.905
0.820
0.676
0.614
0.558
0.463
0.386
0.322
0.270
0.247
0.227
These present value factors are used in Figure 10.2 to discount the yearly cash flows to their present values. In Figure 10.2, the net cashinvestment ($95,000) is subtracted from the sum of cash-inflow present values ($137,331). When the residual is positive, the project's rate ofreturn (ROR) is greater than the minimum acceptable ROR. If:
Present value of incremental net cash inflows ≥ Incremental investment cash outf.
Acetabularia Information For Class 9 .docxvaibhavrinwa19
Acetabularia acetabulum is a single-celled green alga that in its vegetative state is morphologically differentiated into a basal rhizoid and an axially elongated stalk, which bears whorls of branching hairs. The single diploid nucleus resides in the rhizoid.
Biological screening of herbal drugs: Introduction and Need for
Phyto-Pharmacological Screening, New Strategies for evaluating
Natural Products, In vitro evaluation techniques for Antioxidants, Antimicrobial and Anticancer drugs. In vivo evaluation techniques
for Anti-inflammatory, Antiulcer, Anticancer, Wound healing, Antidiabetic, Hepatoprotective, Cardio protective, Diuretics and
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A Strategic Approach: GenAI in EducationPeter Windle
Artificial Intelligence (AI) technologies such as Generative AI, Image Generators and Large Language Models have had a dramatic impact on teaching, learning and assessment over the past 18 months. The most immediate threat AI posed was to Academic Integrity with Higher Education Institutes (HEIs) focusing their efforts on combating the use of GenAI in assessment. Guidelines were developed for staff and students, policies put in place too. Innovative educators have forged paths in the use of Generative AI for teaching, learning and assessments leading to pockets of transformation springing up across HEIs, often with little or no top-down guidance, support or direction.
This Gasta posits a strategic approach to integrating AI into HEIs to prepare staff, students and the curriculum for an evolving world and workplace. We will highlight the advantages of working with these technologies beyond the realm of teaching, learning and assessment by considering prompt engineering skills, industry impact, curriculum changes, and the need for staff upskilling. In contrast, not engaging strategically with Generative AI poses risks, including falling behind peers, missed opportunities and failing to ensure our graduates remain employable. The rapid evolution of AI technologies necessitates a proactive and strategic approach if we are to remain relevant.
The French Revolution, which began in 1789, was a period of radical social and political upheaval in France. It marked the decline of absolute monarchies, the rise of secular and democratic republics, and the eventual rise of Napoleon Bonaparte. This revolutionary period is crucial in understanding the transition from feudalism to modernity in Europe.
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Francesca Gottschalk - How can education support child empowerment.pptxEduSkills OECD
Francesca Gottschalk from the OECD’s Centre for Educational Research and Innovation presents at the Ask an Expert Webinar: How can education support child empowerment?
Exploiting Artificial Intelligence for Empowering Researchers and Faculty, In...Dr. Vinod Kumar Kanvaria
Exploiting Artificial Intelligence for Empowering Researchers and Faculty,
International FDP on Fundamentals of Research in Social Sciences
at Integral University, Lucknow, 06.06.2024
By Dr. Vinod Kumar Kanvaria
2. What is the Internal Rate of Return (IRR)?
The internal rate of return (IRR) is the discount rate where the NPV of a given set of
cash flows is equal to zero.
The IRR is the rate of return the project achieved-the rate of return refers to the
speed that money comes back to you.
You is comparing the IRR with the rate used to discount the project.
Rule
If IRR rate is greater than discount rate, accept project, if not reject project.
3. How to calculate the IRR rate
The IRR rate is found by error and trial.
How to calculate the IRR rate
1. Calculate the NPV using the company's cost of capital.
2. Calculate the NPV using a second discount rate.
(a) If the NPV is positive, use a second rate that is greater than the first rate.
(b) If the NPV is negative, use a second rate that is less than the first rate.
3. Use the two NPV values to estimate the IRR. The formula to apply is as follows:
IRR = a + NPVa x (b-a)%
NPVa-NPVb
a= lower of two interest rates used
b= higher of two interest rates used
NPVa=positive NPV
NPVb=negative NPV
NB-you add together NPVa and NPVb.
4. Example
Example
A company bought a machine for $80,000 and it will last for 5 years and will have a
scrap value of $10,000 at the end of year 5. It will have cash inflows of $20,000 per
annum. It is company policy to undertake projects which exceed the return of 10%.
5. Solution
Solution
First calculate the NPV, using the cost of capital of 10%
Year Cash flow D.F 10% PV
0 -80,000 1 -80000
1 to 5 20000 3.791 75820
5 10000 0.621 6210
NPV 2030
6. Solution-Continue
Calculate the second NPV, using a rate that is greater than the
first rate, as the first rate gave a positive answer.
Suppose we try 12%.
Year Cash flow D.F 12% PV
0 -80,000 1 -80000
1 to 5 20000 3.605 72100
5 10000 0.567 5670
NPV -2230
This fairly close to zero and negative.
Use the two NPV values to estimate the IRR.
10 + 2030 X (12-10)% 0.11 11%
2030+2230
7. Advantages and Disadvantages of the Internal
Rate of Return
Advantages
1. It considers the time value of money.
2. It takes into account the total cash inflows and cash outflows.
3. The profitability of the project is consider over the life of the project.
Disadvantages
1. It involves tediuos calculations.
2. may lead to poor decision making (mutually exclusive projects).
3. It may be difficult to understand, why you have to calculate more than one rate.