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Essay / Research Paper Abstract
This 7 page paper shows the student how to use net present value and internal rate of return calculations and assesses the advantages and disadvantages of using each of these discounted cash flow models. The bibliography cites 4 sources.
Page Count:
7 pages (~225 words per page)
File: TS14_TEnetpresa.rtf
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Unformatted sample text from the term paper:
capital or to raise capital for investment, this means that any investment will have an opportunity cost. The opportunity cost is the return that is lost from projects or investments
that cannot be undertaken. For example, if an investor has a choice of two investments, one giving a 100 return and one with a 200 return, then, as long as
the risk is the same they will want to ensure that they take the most profitable investment, The opportunity cost is the amount that the alterative investment would have made.
When it comes to long-term projects the comparison of different project types and terms is not easy, cash flows may be very different and vary over time. To make
a comparison it is necessary to use a that will allow a comparison on a like for like basis. One tool is that of the net present value; taking the
net cash flows of an investment or project and discounts them into todays terms. However, NPV is only one tool, there are also others, such as internal rate of
return (IRR), this is an alternative measure, for some this is a better measure, but it can also be argued as being more sensitive. To assess both these measures, which
are both discounted cash flow measures we need to look at each and assess how they are used. Net present value is a tool that takes
the future cash flows of a project and discounts them into todays value by taking inflation and/or interest rates into consideration. We can use an example. To show this
we will assume that there is the potential to make an investment, the cost will be 400,000 and the net cash flow it will create, that is cash flow
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