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Chapter 2

Net present value (NPV)

2.1 Introduction

NPV Is usually considered to be the best of all the investment appraisal techniques,
since it measures the absolute gain in wealth to the shareholders if the project is
accepted.

Therefore it links directly to the primary objective of financial management.

2.2 The method and decision rule

 discount the forecast FCF to present value using an appropriate
cost of capital

 a positive NPV means that the project is financially acceptable

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