Explain the theoretical rationale for the NPV approach to investment appraisal

Essay specific features

 

Issue:

Business

 

Written by:

George R

 

Date added:

May 16, 2012

 

Level:

University

 

Grade:

A

 

No of pages / words:

5 / 1399

 

Was viewed:

8466 times

 

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Essay content:

In order to handle these decisions, firms have to make an assessment of the size of the outflows and inflows of funds, the lifespan of the investment, the degree of risk attached and the cost of obtaining funds. The main stages in the capital budgeting cycle can be summarised as follows: ? Forecasting investment needs...
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The range of methods that business organisations use can be categorised in one of two ways: traditional methods and discounted cash flow techniques. The Net Present Value (NPV) is a Discounted Cash Flow (DCF) technique that relies on the concept of opportunity cost to place a value on cash inflows arising from capital investment, where opportunity cost is the "calculation of what is sacrificed or foregone as a result of a particular decision"...
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