# Net Present Value (NPV) analysis of a project reveals + $3,600 based on a discount rate of 12%....

## Question:

Net Present Value (NPV) analysis of a project reveals {eq}+ \$3,600 {/eq} based on a discount rate of {eq}12 \% {/eq}.

A) What does this tell us about the financial viability of the project?

B) What does it not tell us?

C) Why is the NPV method considered to be theoretically superior to other methods such as payback or ARR?

## Net Present Value Method:

A common method used in investment and capital budget planning is the Net Present Value method. It takes into consideration the future cash inflows and outflows of a project. The cash flows are discounted back to a present value meaning that the method takes into account the time value of money.

## Answer and Explanation: 1

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View this answer**A.** This tells us that this company expects for the NPV of their cash inflows to exceed the NPV of their cash outflows by $3,600 for this project. ...

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Chapter 14 / Lesson 3The net present value (NPV) method considered future cash flows to evaluate the value of capital projects—those that increase or decrease an enterprise's value. Learn how this method is calculated and guides budget decisions.

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