Financial_Management

Financial Management Table of Content NPV Method ……………………………… 03 Payback Method …………………………. 05 Average Accounting Return …………. 06 Internal rate of return ………………… 07 Answer # 2 ………………………………… 09 Answer #1 a) NPV Method Technique for analyzing capital investment projects are known as Net Present Value (NPV). A project’s net present value is the amount by which the project is expected to increase the wealth of the firm’s current shareholders. Net present value techniques involve projections of future volume and value increases and calculations of present value based on the cost of investing ones capital in the given periods of time. A dollar today is worth more than a dollar in the future, because inflation erodes the buying power of the future money, while money available today can be invested and grow. The Discount Rate is the rate of return which could be obtained if the initial outlay were invested on the money market. Since the discount rate reflects the future value of money, it typically has two components: an adjustment for inflation, and a risk-adjusted return on the use of the money. Since market forces typically incorporate inflation adjustments into investment returns and borrowing costs, often the discount rate is keyed to a standard reference rate. Some Advantages and disadvantages are:- Advantages:- • It will give value, rate, project, cash, present, discount, return, payback, net, investment, years, money, irr, time, projects, cost, period, method, future, flows, capital, accounting, number, mutually, market, less, internal, exclusive, year, npv, find, factor, 100%, 91%, pv, decision, costs, book, because, average, after, two, should, rule, returns, life, investments, inflation, ignores, gives, give, dollar, correct