global warming

May 13th, 2015
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Evaluating NPV Estimates • A project has a positive NPV if its market value is greater than its cost—such an investment creates value for its owner.

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global warmingProject Analysis and Evaluation Recall again the steps for NPV Evaluation:Determine future cash ows.Slide 1Discount at appropriate rate.Make decision. We have discussed determining future cash ows, and will now consider the make decision step in more detail.chapter091Evaluating NPV Estimates A project has a positive NPV if its market value is greater than its costsuch an investment creates value for its owner.Slide 2 Unfortunately, we generally cannot observe the market value of the investment directly. It must be estimated. Calculating NPV, then, is just valuing uncertain future cash ows. Because the future cash ows are uncertain, there is always the possibility that errors have been made.More Information We generally estimate the market value is by estimating the present value of relevant future cash ows. Future cash ows are uncertain, however. There is the possibility of: errors, (a goof)biases, (overly optimistic or pessimistic forecasts) andomissions. (forgetting something important) Of course, if market value were known with certainty these problems would not exist. Even in the situation outlined earlier where an individual was considering purchasing a house, renovating it, and selling it, all within a short period of time, the future market price is not known with certainty. There is also likely some uncertainty about the actual costs of

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