Methods to evaluate projects

Anonymous
timer Asked: Nov 28th, 2015
account_balance_wallet $5

Question Description

How would XNPV factor into the decision whether to invest in a project since payments are not consistent? In many if not most cases, we expect that there would be consistent payments made so how often is XNPV used and in what types of situations would you expect it to be used?

Tutor Answer

Professor Mary
School: Purdue University

Thank you for the opportunity to help you with your question!

NPV is the net present value.

IRR is the -Internal Rate of Return 

-AIRR is the Adjusted Internal Rate of Return 

the net present value shows the activities of a company and can be used to determine whether to invest in a project or not,it gives credible information on payments.

The biggest limitation to the calculation of NPV is its sensitivity to the discount rates , NPV calculations  are a summation of multiple discounted cash flows - both positive and negative - converted into present value terms for a similar point in time (oftenly when the cash flows starts). As such, the discount rate used in the denominators of each present value (PV) calculation is vital in identifying what the final NPV number will turn will result to . A small increase or decrease in the discount rate will have a considerable effect on the final output.


Please let me know if you need any clarification. I'm always happy to answer your questions.

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Anonymous
Excellent job

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