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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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Financial Decision Making Essay 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. Introduction Net Present Value (NPV) is defined as the different between an investment's market value and its cost. NPV rules states that we will accept the project if it creates a positive NPV, and will reject the project if the NPV <0. In other words, NPV is a measure of how much value being created today by undertaking investment. Managers need to make investment decisions and calculating NPV can help them to see the likelihood of investment being profitable. There are a variety of ways to estimate net present value, such as the discounted cash flow approach and the discounted payback method etc. However, there is risk, because there is no guarantee that the estimations will turn out to be...
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