Discuss NPV method for making capital budgeting decisions with suitabl

Question

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

18 Mar 2025

Answer :

Word Count : 578

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) - _____ ___ _________ ______ ______ _______ _______ ______ ____.
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