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7 pages. The statement "we should always accept a project if the net present value is positive" will be critically discussed in this paper. Other terms presented herein will include certainty equivalents, adjusting for inflation, uncertain salvage value, and internal rate of return. Bibliography lists 8 sources.
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File: D0_JAnpvirr.rtf
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will include certainty equivalents, adjusting for inflation, uncertain salvage value, and internal rate of return. NET PRESENT VALUE There are three discounted cash-flow methods. The most popular is
the net present value method. The other lesser-used methods are the internal rate of return and the profitability index. All of these are related in one sense, and
that is in their recognition that time is money. In other words, this means the time value of money. The net present value is the amount of monetary change
in the shareholders holdings if the management of a given corporation accepts a project that has been proposed to the company. This amount is measured by the "difference between
the net investment cash outflow and the present value of cash inflows" (Roden & Christy 464). Only if the net present value is positive is the offer accepted; otherwise,
if the net present value is a negative one, the offer would be turned down. Management would look at this in that they would rank the projects according to the
net present value of each one. If capital rationing is absent, then management accepts the project with a positive net present value. Capital budgeting would be that condition
in which an organization could not accept all of the projects it is offered. When this rationing is present, management will choose to select from those appropriate projects the
ones that will most likely maximize the sum of the net present values (Roden & Christy 464). Sometimes the net present value is made into a ratio in order to
become a net present value index. (Also called a net profitability index). This is the percentage of change in the shareholders money that is attached with accepting the
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