0
What method of evaluating capital investment proposals uses the concept of present value to compute rate of return?
Wiki User
∙ 8y ago
The present value method of analyzing capital investment proposals involves the discounting of future cash flows provided by the investment using the the opportunity cost of capital, or weighted average cost of capital. By discounting the cash flows, you are then able to compare the initial investment with the future cash flows in present value terms. When the sum of future cash flows provide a premium to the initial investment, the net present value becomes greater than zero, and the capital investment should be considered. On the other hand, if the initial investment exceeds the sum of future cash flows, the net present value of the project is less than zero and should be discarded.
Wiki User
∙ 14y ago
The method that uses the concept of present value to compute rate of return is called the Net Present Value (NPV) method. In this method, the cash inflows and outflows of a capital investment proposal are discounted to their present value using a discount rate. The NPV is then calculated by subtracting the initial investment from the present value of the cash flows. A positive NPV indicates a profitable investment, while a negative NPV suggests an unprofitable investment.
Add your answer:
Earn +20 pts
Can investment depreciation reserve be considered as free reserve to compute as tier you or tier ii capital?
Investment deportation reserve not considered as free reserve
How do you compute marginal cost of capital?
Take the first-order derivative of the cost of capital function.
What is a capital investment's net present value?
Widely used approach for evaluating an investment project. Under the net present value method, the present value (PV) of all cash inflows from the project is compared against the initial investment (I). The net-present-valuewhich is the difference between the present value and the initial investment (i.e., NPV = PV - I ), determines whether the project is an acceptable investment. To compute the present value of cash inflows, a rate called the cost-of-capitalis used for discounting. Under the method, if the net present value is positive (NPV > 0 or PV > I ), the project should be accepted.
The Guillermo furniture store scenario Compute the return on investment residual income and economic value added for the current situation?
The Guillermo furniture store scenario Compute the return on investment residual income and economic value added for the current situation?
How will you compute the cost of debt capital?
we keyin the credit then we take out the debit.?
How do you compute the Marginal Cost of Capital schedule?
Marginal or incremental cost of capital is cost of the additional capital raised in a given period
How compute cost of debt for WACC of a 5y project for company that has NO access to long-term debt markets?
1. If company has no access to long term debt as a source of capital then weighted average cost of capital will only include the rate of equity as a WACC for discounting long term projects as firm has not a mix of debt and equity to finance its investment projects
In a paragraph when you say First do you have to put a capital letter after?
No. It's not necessary. Example: First, compute for the greatest coefficient.
How to compute cost to be capitalized for acqusition of assets?
The cost to be capital its depend upon the company policy whether they should capitalze the cost or not.
How do you compute the profitability index of a capital-budgeting proposal?
Dividing the present value of the annual after-tax cash flows by the cost of the project
How to compute discounted payback period?
What is the payback period of the following project? Initial Investment: $50,000 Projected life: 8 years Net cash flows each year: $10,000
Which methods of capital budgeting are the most frequently used?
The most frequently used methods of capital budgeting include net present value (NPV), internal rate of return (IRR), and payback period. NPV compares the present value of cash inflows to the present value of cash outflows over the project's lifespan, taking into account the time value of money. IRR calculates the rate of return that would result in a net present value of zero. Payback period measures the time required to recover the initial investment.
