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Explain the theoretical rationale for the NPV approach to investment appraisal and compare the strengths and weaknesses of the NPV approach to two other commonly used approaches.
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Tom Kneafsey - 0350173 Explain the theoretical rationale for the NPV approach to investment appraisal and compare the strengths and weaknesses of the NPV approach to two other commonly used approaches NPV is short for Net Present Value. It is used as an approach to investment appraisal. The NPV shows the difference between a project's present value and its cost. Naturally a positive value is best for companies and shareholders alike. To calculate the Net Present Value, the Present Value (PV) of the project must first be calculated. This is calculated by dividing the projects future value after t time periods - by (1+r)t where r is the interest rate. It shows how much the future worth of the project is worth in today's terms. Net Present Value is shown by subtracting the required investment for the project from the Present Value. This shows a potential market value for the project once it...
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