Application Of The Net Present Value Method

  • Financial Charges

Companies should use the required rate of return to discount a project’s net cash flows.

  • Incremental Cash Flows

In calculating a project’s net cash flows, it is the incremental net cash flows that are important

  • The Importance of Excluding sunk costs

Suppose that the Split Oil Company has spent $20 million exploring a particular area without success

  • The treatment of allocated costs

Companies Often Allocate costs such as rent, water, research, and development, head office costs, travel, and other overhead costs to their divisions

  • Residual value

When a project is terminated, it is likely that a portion of the initial capital outlay will be recovered

  • Timing of the cash flows

In some cases, financial calculations are based on the precise timing of the relevant cash flows

  • Inflation and project evaluation

The Australian economy has at times experienced prolonged periods of inflations


Graham, Peirson., et al. 2002., Business Finance : McGraw – Hill Australia


Peirson, Graham. (2002). Business Finance. 2002. hlm 159



One response to this post.

  1. Very nice article, exactly what I needed.


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s


Life is better in red

Love Math

Belajarlah memahami sesuatu dari berbagai sudut pandang

Streets of Nuremberg

Street | Urban | Travel | Photography by Marcus Puschmann

%d bloggers like this: