There may be different objectives within firms, and we assume that increase the order of the stock (or tap share price and maximising shareholders wealth) is the main objective of financial management. The most important overture we use to label the optional enthronisation is called the NPV (Net Present Value) rule. normally we choose to estimate the gratuity mensurate of future bullion flows we expect from the new project. Here we will use the radical discounted cash flow procedure to estimate the present value to those future cash flows, which is called discounted cash flow valuation. The earn present value of and enthronisation funds is the present value of the investments future cash flows, minus the initial cost of the investment. If the net present value is positive, the investment is acceptable, because doing so is essentially the same as receiving a cash payment equal to the net present value. If the net present value is negative, taking on the investment now is equivalent to giving up some cash today, and the investment should be rejected. The NPV approach is not the only method to evaluate an investment, other approaches, such as the payback rule, the average bill return, the internal rate of return, etc, are also commonly use by firms.
The payback rule is widely used by large firms, because of its convenience to calculate. What is the rationale of the payback rule? chiefly speaking, it is based on the pay back effect of an investment and compares it with the required payback point in time. The payback period is the length of cartridge holder an investment takes to recover the initial investment, and the required payback period is usually decided by the firms. If the calculated payback period of an investment is less than the required payback period, then this investment is...
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