NPV - P2 Flashcards
1
Q
What is NPV?
A
Net benefit or loss of benefit in present value terms from an investment opportunity
2
Q
What does NPV represent?
A
NPV represents the surplus funds earned on the project. This means that it tells us the impact on shareholders wealth.
3
Q
What is the charactertics of NPV?
A
- Considers the time value of money
- An absolute measure of return
- Based on cash flows not profits
- Considers whole life of the project
4
Q
What is the drawbacks of NPV?
A
- Difficult to explain to managers
- Requires knowledge of the cost of capital
- Relatively complex
