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3) What is the rationale behind the NPV method? According to NPV, which project or projects should be accepted? 4) Would the
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Answer #1

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Q.no.3

a) Rationale behind NPV Method :

Net present value method/technique is a discounted cash flow method that considers the time value of money in evaluating capital investment.

The NPV method use specified  discount rate to bring all subsequent net cash inflows after the initial investment to the present values(the time of initial investment or year 0)

b) Under NPV method project which has highest postive NPV is accepted.

Q.no.4

Yes, NPV changes when  WACC changes, because discount rate used to compute Present value of cash inflow will also change with cahnge in WACC.Hence there will be change in present value of cash inflow that effect NPV of the project


answered by: ANURANJAN SARSAM
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Answer #2

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Q.no.3

a) Rationale behind NPV Method :

Net present value method/technique is a discounted cash flow method that considers the time value of money in evaluating capital investment.

The NPV method use specified  discount rate to bring all subsequent net cash inflows after the initial investment to the present values(the time of initial investment or year 0)

b) Under NPV method project which has highest postive NPV is accepted.

Q.no.4

Yes, NPV changes when  WACC changes, because discount rate used to compute Present value of cash inflow will also change with cahnge in WACC.Hence there will be change in present value of cash inflow that effect NPV of the project

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