Why is the NPV method superior to payback method?
How is the method superior to the payback method
Disadvantages of Payback Method: It may lead to excessive investment in short term projects. The choice of any cut-off payback period by an organization is arbitrary.
Which investment rule may not use all possible cash flow in its calculations npv payback period or irr?
NPV(net present value) Payback period ARR IRR
the payback method ... is a method to evaluate the project in capital budgeting ... or simply in a long term dicision making for the entity .and because it is a long term in nature ..... the risk is high ... by evaluatining methods ... we try to reduce the uncertinity ... one of the methods ...is payback method . the disadvantage of the payback method is ...it does not concern with the time value… Read More
Simple payback method do not care about the time-value of money principle while discounted payback period do take care of this principle in calculation.
Advantage and disadvantage of NPV what is the advantage and disadvantage of Net Present Value Method?
Advantages: a. It will give the correct decision advice assuming a perfect capital market. It will also give correct ranking for mutually exclusive projects. b. NPV gives an absolute value. c. NPV allows for the time value fo the cash flows. Disadvantages: a. It is very difficult to identify the correct discount rate. b. NPV as method of investment appraisal requires the decision criteria to be specified before the appraisal can be undertaken.
It's not a direct measure of a project's contribution to stockholder's wealth. You may reject project's that should be accepted when using the NPV analysis (best method used for determining whether or not a project is accepted in Capital Budgeting). Discounted Payback Period Advantages Considers the time value of money Considers the riskiness of the project's cash flows (through the cost of capital) Disadvantages No concrete decision criteria that indicate whether the investment increases the… Read More
A discounted payback method is a formula that is used to calculate how long to recoup investments based on the discounted cash flows of the investment. It is a variation of payback period or the time it takes to recover a project investment given the discounted cash flow it has.
we only know the disadvantages: The cash flows beyond the payback period are ignored..
In payback period of investment appraisal method all cash inflows and outflows are analysed and find out that in how many years investment proposal will earn the invested money.
The basic criticisms of the payback period method are that it does not measure the profitability of an investment and it does not consider the time value of money.
Payback period method evaluates any investing activity from how much money it will pay back and how much time it requires to payback in number of years.
Interpolation method is used to know the exact point or rate of return where NPV(net present value) of investments is zero.
In the IRR method, the intermediate cash inflows are assumed to be consumed and so are not reinvested. The unmodified IRR method, as compared with the NPV method, will not show the superiority of any two mutually exclusive investments with two different initial outlays. In such a case, an investment with lower IRR could have a higher NPV and therefore should be chosen by an investor. In some cases where there are streams of positive… Read More
Payback period method is the strategy used to calculate the amount of time that a given investment will take to recover the initial cost. The amount of time will help in deciding whether the project is viable or not. The shorter the period the more viable the project.
no it increases npv
Compare and contrast NPV with IRR
Problems with project ranking: 1. Mutually exclusive projects of unequal size (the size disparity problem) - the NPVdecision may not agree with the IRR or PI. Solution: select the project with the larges NPV (not IRR). 2. The time disparity problem with mutually exclusive projects - NPV and PI assume cash flows are reinvested at the required rate of return for the project. IRR assumes cash flows are reinvested at the IRR. NPV decision may… Read More
NPV decreases when the cost of capital is increased.
The NPV assumes cash flows are reinvested at the: A. real rate of return B. IRR C. cost of capital D. NPV
There may be other considerations, especially the risk.
The Payback method is one of the investment appraisal methods. Other methods to appraise investments are the Average Rate of Return and the Net Present Value method.
There are several 'criteria' that could be used to assess whether a project is worth delving into. I will briefly outline three: Net Present Value (NPV): Net present value is the computation of the present value of all the cash flows minus the required investment. This method takes into account the time value of money, that money loses value over time due to inflation. Thus it discounts all cash flows accordingly, sums this amount and… Read More
Which is the best method for Cathodic protection. Sacrificing anode method or Impressed current method?
When reliability is concerned then ICCP method is superior but when overhead cost incurred in installation and maintenance is concerned then sacrificing anode method is better than ICCP method. When reliability is concerned then ICCP method is superior but when overhead cost incurred in installation and maintenance is concerned then sacrificing anode method is better than ICCP method.
You use the NPV function. Start by specifying the rate and follow it with a list of future values that you want to help determine your result. So you could have something like this: =NPV(5%,10,20)
IRR: Internal rate return NPV: Net present value Both are measure of the viability of a project(s) You can have multiple IRR (because of discontinued cash flows) but you always have one NPV.
Internal rate of return, net present value, accounting rate of return and payback method.
There is no direct formula to calculate IRR instead what we have is an equation that states IRR is the rate at which NPV is zero. NPV or Net Present Value is the difference between compounded net cash flows discounted at IRR and the initial expense What we resort to instead is hit and trial method, where we start off with an initial guess and find the NPV. If the NPV comes out positive we… Read More
NPV decreases with increasing discount rates.
Initial Net Investment / (Annual expected cash flow + salvage value)
Suppose i have selected Suzlon company so how can i create NPV in 2006 and how to analysis annual Report of 2006.
Why the NPV of a relatively long term project is more sensitive to changes in the cost of capital than is the NPV of a short term project?
due to the uncertainty
Calculate NPV of MBA
the Internal rate of return is the discount rate in the NPV formula which makes NPV equal to 0. It is kind of the breakeven point for the NPV analysis. Though IRR is a relative measure and not an absolute measure like the NPV. Also there is a problem where a capital investment appraisal results in multiple IRR's Calculation of IRR This is done via linear interpolation
why investment in financial market have zero NPV? where as firms can find many investments in their product markets with positive NPVs.
1 million dollars paid over 40 years or the NPV. The NPV would be around $375,000.
IRR vs NPV When the exercise of capital budgeting is undertaken to calculate the cost of a project and its estimated returns, two tool are most commonly used. These are Net Present Value (NPV) and Internal Rate of Return (IRR). When evaluating a project, it is generally assumed that higher the value of these two parameters, the more profitable the investment is going to be. Both the instruments are made use of to indicate whether… Read More
For the NPV criteria a project is acceptable if the NPV is while for the profitability index a project is acceptable if the profitability index is?
less than zero, greater than the requred return
Net Present Value
Nuveen Virginia Premium Income Municipal Fund (NPV)had its IPO in 1993.
Npv is the net present value of cash flows.The npv is a method of calculating whether a project is worth while based on its initial investment and the returns that will be received.Cash flows can be considered an amount of money which will flow into or out of the business. In the commercial world we can not just look at the values and assume that the same amount of money you invest in this project… Read More
Yes, The PI and NPV always give the same decisions to accept or reject the projects. The Project's PI will be greater than 1.00 if the NPV is positive and PI will be less than 1.00 if the NPV is negative
As of July 2014, the market cap for Nuveen Virginia Premium Income Municipal Fund (NPV) is $233,985,286.35.
Well they both have different properties. You would have to research to find the difference.
These abbreviations refers to the terms Net Present Value (NPV) and Internal Rate of Return (IRR). These two terms are use in connection with the concept and techniques that consider that the money that available at a given time is more valuable than the same amount of money at some later time because the money can earn interest or because the satisfaction that can be derived immediately is more attractive to individuals than the satisfaction… Read More
Formula for the Payback Period. Payback period = Initial investment / Annual Cash inflows
NPV: Strengths: *By considering the time value of money, it allows consideration of such things as cost of capital, interest rates and investment opportunity costs. It's especially appropriate for long-term projects *The strength of calculating NPV is that we are recognizing the value of a dollar today is greater than the value of a dollar received a year from now. That's the time value of money concept. The other strength of this measure is that… Read More
Yes, payback is an emotion in a way..
Explain why a characteristic of an efficient market is that investments in that market have zero NPVs?
On average, the only return that is earned is the required return-investors buy assets with returns in excess of the required return (positive NPV), bidding up the price and thus causing the return to fall to the required return (zero NPV); investors sell assets with returns less than the required return (negative NPV), driving the price lower and thus the causing the return to rise to the required return (zero NPV).