Net Present Value

Question 1

Definition

Answer 1

Capital investment appraisal method which recognised that money has a time value

Question 2

Benefits of discounted cash flow

Answer 2

• all cash flows are considered
• the time value of money is used
• the timing of cash flows is taken in to account
• easy to produce when using table of factors

Question 3

Limitations of discounted cash flow

Answer 3

• cost of capital rate, or rate of return, is difficult to ascertain
• the meaning on Net present value is not always clear
• the estimates of cash flows may become inaccurate

Question 4

Other considerations

Answer 4

• total implications
• cost of finance
• taxation considerations
• forecasting techniques
• size of the investment

Question 5

Layout of a report

Answer 5

Project names

• introduction
- brief explanation of what the report is about
• report
- break down of the report/results
• conclusion
- further analysis of the results of each project
- recommendation with facts