Discounted Cash-Flow

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    When making an investment decision a business might consider what cash flow or profit earned is worth at the present value

    Advantages of NPV:

    • The discounted cash flow method unlike the payback method and the average rate return correctly accounts for the value of future earnings by calculating present values
    • The discount rate used to be changed as worth and conditions and financial markets for example in the 1990s the cost of business is 15%. Investment projects therefore do not need to make such a high rate of return

     

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