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the net present value (or npv) criteria for capital budgeting decisions assumes that expected future cash flows are reinvested at , and the internal rate of return (or irr) criteria assumes that expected future cash flows are reinvested at . group of answer choices the internal rate of return; the internal rate of return the internal rate of return; the firm's discount rate the firm's discount rate; the internal rate of return neither criteria assumes reinvestment of future cash flows

Respuesta :

Net present value is the difference among the current worth of cash inflows and outflows over time (NPV). In capital budgeting and investment planning, NPV is used to determine the profitability of a planned investment or project.

What is Net present value:

Using the appropriate discount rate, computations are performed to determine the current value of a stream of future payments, or NPV. Projects that have a positive NPV are generally worthwhile pursuing, whereas those that have a negative NPV are not.

  • Using net present value, one may calculate the current value of a series of payments from a company, project, or investment (NPV).
  • To calculate NPV, you must forecast the timing and size of future cash flows and select a discount rate that is equal to the least permissible rate of return.
  • The discount rate may reflect your cost of capital or the returns offered by alternative investments with comparable risk.
  • A project or investment will have a better rate of return than the discount rate if the NPV is positive.

Net present value (NPV), which takes time value of money into account, can be used to compare the rates of return of various projects or to compare an anticipated rate of return with the hurdle rate required to accept an investment. Because it represents the time value of money in the NPV formula, the discount rate, which is dependent on a company's cost of capital, may be a hurdle rate for a project. Regardless of how the discount rate is determined, a negative NPV suggests that the project will not generate value because the expected rate of return will be lower than it.

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