The Advantages & Disadvantages, NPV Method

*Note : I am going to add my Corporate Strategy Assigment when i was at the university about Financial Investment Methods. Enjoy it :)

PART -12

7.1           THE ADVANTAGES & DISADVANTAGES, NPV METHOD

Some of the advantages of Net Present Value is as below:

• Evaluation of investment projects, it is important that to consider the time value of money in the calculations. This aspect gives a particular advantage to NPV method.
• NPV method, it has great importance to calculate the discount rate for further calculation that the present value determination.
• To be low or high of this rate affect the decision of the investment projects.
• If this rate is determinated high, large cash inflow investments will be prefered at the beginning years of the project life.
• If this rate is determinated low, Large cash inflow investments will be preferred at the end of the project life.
• The determined and used discount rate at the NPV method is used without changing in the useful life of all revenues.
• However, affecting the determination of pensionable discount; resource cost, profit rate, the interest rate in the economy and so on. factors would be changed in a time. Therefore, for a long period of time with a single discount rate reduction decision-making process can be accurate in some cases blocking properties.
• Each year, with different discount rates to calculate NPV is difficult to estimate as accurately as the rate of discount for each year is also a hassle.
• NPV method of investment projects over a certain discount rate, are intended to maximize the present value.