65288a64fe p.36. 548 ^ Bichler, Shimshon; Nitzan, Jonathan (July 2010), Systemic Fear, Modern Finance and the Future of Capitalism (PDF), Jerusalem and Montreal, pp.811 (for discussion of history of use of NPV as "capitalisation") ^ Nitzan, Jonathan; Bichler, Shimshon (2009), Capital as Power. ^ Lin, Grier C. A positive net present value indicates that the projected earnings generated by a project or investment (in present dollars) exceeds the anticipated costs (also in present dollars). It is widely used throughout economics, finance, and accounting. A rigorous approach to risk requires identifying and valuing risks explicitly, e.g., by actuarial or Monte Carlo techniques, and explicitly calculating the cost of financing any losses incurred.
The NPV measures the excess or shortfall of cash flows, in present value terms, above the cost of funds.[5] In a theoretical situation of unlimited capital budgeting a company should pursue every investment with a positive NPV. Free cash flow should be used as the basis for NPV computations. 403 Forbidden . A way to avoid this problem is to include explicit provision for financing any losses after the initial investment, that is, explicitly calculate the cost of financing such losses. Payback period: which measures the time required for the cash inflows to equal the original outlay. In financial theory, if there is a choice between two mutually exclusive alternatives, the one yielding the higher NPV should be selected. Then they are summed. Download of spreadsheets for NPV calculation (Download/For Professionals and Students/Fig. Real option: which attempts to value managerial flexibility that is assumed away in NPV.
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