Page 222 - BA2 Integrated Workbook - Student 2017
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Chapter 14





                           Net present value (NPV)





               4.1   NPV technique

               Typically an investment opportunity will involve a significant capital outlay initially with
               cash benefits being received in the future for several years. To calculate the NPV:

                    convert all future cash inflows into present value terms

                    deduct the initial investment.


               The NPV represents the surplus funds (after funding the investment) earned on the
               project. This tells us the impact the project has on shareholder wealth.



                           Decision criteria


                               Any project with a positive NPV is viable. It will increase shareholder
                                wealth

                               Faced with mutually-exclusive projects, choose the project with the
                                highest NPV







               Go over illustration 4

               Try TYU 10





























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