Discuss NPV method for making capital budgeting decisions with suitable examples.

The Net Present Value (NPV) method is a widely used technique in capital budgeting for evaluating investment projects. It is a discounted cash flow (DCF) approach that assesses the profitability of an investment by calculating the difference between the present value of cash inflows and the present value of cash outflows. The NPV method is based on the principle of time value of money, which states that a rupee received today is worth more than a rupee received in the future.

The formula for calculating NPV is as follows:

NPV=∑(Ct(1+r)t)−C0NPV = \sum \left(\frac{C_t}{(1 + r)^t}\right) - C_0

Where:

• NPVNPV = Net Present Value
• CtC_t = Cash inflows in year tt
• rr = Discount rate ____ _______ ________ ________ _______ _______ ________ _________ ___ ________ ________.
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