As the time period for an NPV analysis gets longer, what happens to each incremental present value
Question:
Step by Step Answer:
After a number of years the present value factors for all discount rates become quite small ...View the full answer
Cost Management Measuring Monitoring and Motivating Performance
ISBN: 978-0470769423
2nd edition
Authors: Leslie G. Eldenburg, Susan K. Wolcott
Related Video
NPV stands for \"Net Present Value,\" which is a financial concept used to determine the value of an investment or project. It measures the difference between the present value of cash inflows and the present value of cash outflows over a given period of time, using a specific discount rate. To calculate the NPV of an investment, you need to first estimate the cash inflows and outflows associated with the investment, and then discount them back to their present values using a discount rate. The discount rate represents the cost of capital or the expected rate of return required by investors. The formula for calculating NPV is: NPV = sum of (cash inflows / (1 + discount rate)^t) - sum of (cash outflows / (1 + discount rate)^t) Where: Cash inflows: the expected cash received from the investment Cash outflows: the expected cash paid out for the investment Discount rate: the required rate of return or the cost of capital t: the time period in which the cash flow occurs If the NPV is positive, it means that the investment is expected to generate a return higher than the required rate of return or the cost of capital, and it may be considered a good investment. If the NPV is negative, it means that the investment is not expected to generate a return higher than the required rate of return or the cost of capital, and it may be considered a bad investment.
Students also viewed these Managerial Accounting questions
-
3. Consider the frequency distribution given below pertaining to a particular continuous random variable (X). X 0 - 10 10 - 20 f 16 10 9 10 5 20-30 30 - 40 40 - 60 a) What is the modified standard...
-
What is the present value interest factor for an annuity? What is the formula for determining the present value of an annuity when using the present value interest factor for an annuity table?
-
Present Value Analysis of Interest Rate Cap and Journal Entries At July I, 2013, Comiskey Company has $ 10,000,000 of debt due in four years with interest floating at prime. The rate is adjusted...
-
Consider the Cobb-Douglas production function with X=l 1 l 2 where +l 1 , where d>0. (a) Denoting the input prices by w 1 and w 2 , derive the cost function as it depends on x and e. Show that it...
-
1. How does the need recognition portion of the consumer decision-making process apply to this case? What need is being addressed? 2. What brands of bottled water are you familiar with? Do these...
-
Drops of water from a cracked gutter fall past the window of an IGCSE Physics students room, as shows in the diagram. The student uses a digital stopwatch to find the time between one drop and the...
-
Explain the term coffin corner.
-
Gomez Co. manufactures goods to special order and uses a job order cost system. During its first month of operations, the fol- lowing selected transactions took place: a. Materials purchased on...
-
For the following scenario, I need you to answer the following questions to. Be sure to cite the authority that supports your analysis for each question. Also, cite 2 scriptures in the Bible that...
-
There is a lottery with n coupons and n people take part in it. Each person picks exactly one coupon. Coupons are numbered consecutively from 1 to n, n being the maximum ticket number. The winner of...
-
When we learned CPV analysis in Chapter 3, we calculated the amount of pretax profit needed to achieve a given level of after-tax profit. We could calculate a pretax rate of return given an after-tax...
-
Refer to the present value of an annuity table. As the time period in an analysis using annuity factors gets longer, what happens to each incremental factor? Explain why this is different from the...
-
Melanie is employed full-time as an accountant for a national hardware chain. She recently started a private consulting practice, which provides tax advice and financial planning to the general...
-
How do the services and costs vary with the different types of full-service, discount service, deep discount, and online brokerage accounts?
-
Finance professors often assert that the stock market is efficient. Explain market efficiency and provide an example of a contradiction to the theory. Explain why the average investor is often unable...
-
What is short selling? Should the average investor consider using short selling techniques? Why or why not?
-
What is a continuous market? What is the primary reason stock prices move up and down in a continuous market? Who stabilizes the price in this type of market and how do they accomplish it?
-
Interview a property and casualty insurance agent to find out what type of homeowner's and auto insurance policies are most commonly purchased in your area and which policy features are most often...
-
According to the local expectations theory, what would be the difference in the onemonth total return if an investor purchased a five-year zero-coupon bond versus a twoyear zero-coupon bond?
-
During 2012, Cheng Book Store paid $483,000 for land and built a store in Georgetown. Prior to construction, the city of Georgetown charged Cheng $1,300 for a building permit, which Cheng paid. Cheng...
-
Coherent states are potentially an interesting basis to consider in which to express states on the Hilbert space. Are they a good basis, satisfying qualities that we desire of a basis on the Hilbert...
-
Financial accountants use estimates of financial value differently than either cost or management accountants. REQUIRED 1. Identify two differences in use. 2. Identify a similarity among accountants.
-
Strategy usually includes some formal processes. REQUIRED 1. How can managers choose between different strategies? 2. How is strategy different from an operating decision?
-
Strategy usually includes some formal processes. REQUIRED 1. How can managers choose between different strategies? 2. How is strategy different from an operating decision?
-
J is going to receive a 30-year annuity of 8,500 and L is going to receive perpetuity of 8,500. If the appropriate interest rate is 6%, how much more is L's cash flow worth?
-
. Assume that over the past 88 years, U.S. Treasury bills had an average return of 3.5% as compared to 6.1% on long-term government bonds. What was the average risk premium on the long-term...
-
The following data were gathered to use in reconciling the bank account of Bradford Company: Balance per bank $ 18,050 Balance per company records 10,040 Bank service charges 50 Deposit in transit...
Study smarter with the SolutionInn App