Net Present Value NPV is a valuable technique to evaluate various projects for investment opportunities. We have covered NPV in great detail under Financial Management topic. Limited time scale exams normally includes MCQs (multuple choice questions), so it is a good idea to practice…
Inflation is usually defined as the general rise in the price of the goods and services. So, it has huge impact over the Net Present Value analysis because we use nominal rate of return in discounting cash flows to the…
Taxes and NPV NPV calculation is not simple one. Complexities arise when the matter of taxation comes into the analysis. When doing DCF (Discounted Cash Flows) exercises, it is necessary to take effect of the taxes and for this, it…
Most of the countries in the world allow depreciation over the fixed asset in tax regime. This is called Capital Allowances and is a saving from paying more tax to the tax authorities. Capital allowances can be claimed for properties,…
There are circumstances where a company cannot invest in more than one project either due to scarce resources or it does not want to go for more than one option. Under these circumstances, it becomes very difficult to choose which…
It is one of the methods of evaluating projects. In simple words, we can define ARR as return on capital employed (ROCE). It is input output ratio of the project under consideration. That is; how much money is invested and…
It is a modified form of payback period method that we have discussed. As you know that PBP ignores time value of money and this is the main reason, analyst tries to avoid this method. However, they prefer to use…
In practical life, an enterprise has many options to invest in long term projects. These projects have different life span. For financial analyst to evaluate various projects with unequal lives, the solution is not easy. He cannot compare NPV or…
IRR (Internal rate of return) is the valuable technique to evaluate capital intensive project. This is useful when the cash flows are following the conventional pattern of cash flows. Be conventional pattern, we mean that in initial years, cash outflows…
Profitability Index is another most important capital investment evaluation method. It is denoted by PI. It takes into account present value of future cash flows and compares it with the initial amount of investment. That is why; it makes this…