'Net Present Value method Essay\r'

'1. Net inaugurate Value system acting is one of the methods employ in keen budgeting. The NPV is based on the discontinued exchange arise. A company that has a proposal for a new project or an investment uses the NPV method to decide if they should accept it or move on with a different investment. This method posts valuable selective information to the management about the notes outflows related to the investment and cash inflows from the investment with the consideration of the time apprize of money. The time value of money has been considered in this method because the money invested today will have a different value in the future.\r\nThe cost capital is the minimum rate of make it that the proposed investment of necessity to reach in order to be reliable. When compute the Net Present Value the future cash outflows and inflows are discounted at present value at the rate of the cost of capital. If the required rate of return is lower than the cost of capital, then the company should turn down the project and should not engage with it any further. On the other hand, if the required rate of return is raze or higher, then the investment will be able to bring the profit that will provide founds to pay liabilities to company’s creditor and shareholders.\r\n2. Under infixed Rate of Return the investment is evaluated based on the expected rate of return. The IRR for a cash flow is an interest rate that results in a NPV get even to zero. In this method the cost of capital is used and also known as hurdle rate. bank vault rate is the minimum rate that the investment needfully to reach in order to be accepted by the management. After computing the IRR, the decision do body compares the IRR results to the cost of capital rate. If the IRR is equal or higher that hurdle rate, the investment can be accepted, if lower †project should be rejected.\r\n'