![]() With this procedure, NPV (and IRR ) problems involving up to 80 cash flows (in addition to the initial investment CF 0 ) can be solved. If there are no equal consecutive cash flows, use the procedure described (and then summarized) below. Calculating Net Present Value (NPV)Ĭalculating NPV for Ungrouped Cash Flows. Z If IRR is less than the desired rate of return, the investment is not financially attractive. Z If IRR is equal to the desired rate of return, the investor is indifferent toward the investment. Z If IRR is greater than the desired rate of return, the investment is financially attractive. ![]() The value of IRR relative to the present value discount rate also indicates the result of the investment: ![]() IRR is the rate of return at which the discounted future cash flows equal the initial cash outlay: IRR is the discount rate at which NPV is zero. Z If NPV is negative, the financial value of the investor’s assets would be decreased: the investment is not financially attractive.Ī comparison of the NPV’s of alternative investment possibilities indicates which of them is most desirable: the greater the NPV, the greater the increase in the financial value of the investor’s assets. Z If NPV is zero, the financial value of the investor’s assets would not change: the investor is indifferent toward the investment. Z If NPV is positive, the financial value of the investor’s assets would be increased: the investment is financially attractive. Section 4: Additional Financial Functions
0 Comments
Leave a Reply. |