Introduction of the term net present value

Question

Give a brief introduction of the term net present value? Write down its admittable rules, their merits and demerits?

Answer 1

Net present value (or NPV) is a financing word that illustrates the cash flow worth for both outflow and inflow and it is been stated as the sum of the present values of cash flow. NPV is formulated as prospect cash flow subtracted from the buy price. It is as well the tool to compute discounted cash flow and is a standardized method for the determination of capital budgeting. The merits and demerits of it are illustrated below:-

The advantage of NPV is required for long term projects and it evaluates the excess or shortfall of cash flows as it is employed for the reinvestment at the discount rate that is employed for this.

The advantage is that the amendment for this is a less risky and it adds a less of complexity in making the cost higher.