![]() If present value of cash inflows is greater than the present value of the cash outflows, the net present value is said to be positive and the investment proposal is considered to be acceptable. These three possibilities of net present value are briefly explained below: Positive NPV: Net present value is the difference between the present value of cash inflows and the present value of cash outflows that occur as a result of undertaking an investment project. It uses net present value of the investment project as the base to accept or reject a proposed investment in projects like purchase of new equipment, purchase of inventory, expansion or addition of existing plant assets and the installation of new plants etc.įirst, I would explain what is net present value and then how it is used to analyze investment projects. Net present value method (also known as discounted cash flow method) is a popular capital budgeting technique that takes into account the time value of money.
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