FOR INDIA'S BEST CA CS CMA VIDEO CLASSES CALL 9980100288 OR VISIT HERE
Take This Quiz & Predict Your Score in the coming CA CS or CMA Exam!
  • How important it is for you to pass the exam in this attempt?
  • What percentage of course you have finished well so far roughly?
  • How many hours you study in a day?
  • How many times you have revised the topics you have finished
  • Have you taken online or pen drive or live class from a renowned faculty?
  • What percentage of the classes you have watched?
  • Have you attempted mock tests or practice tests yet?
  • Are you planning to attempt mock tests conducted by external bodies- ICAI, ICSI, ICMAI or other institute?
  • How many tests you have taken?
  • Did you manage to finish the test papers on time?
  • Are you strictly following study material provided by the exam conducting authority such as ICAI/ICSI/ICMAI/Other Body?
  • How is your health in general?
  • How is your food habit?
  • Any interest in yoga or exercise or play sports regularly?
  • Planning to sleep well nights before the exams?
  • Planning to have light food and water before exams?

All about Net Present Value

All about Net Present Value

Net Present Value (NPV) : The difference between the present value of cash inflows and the present value of cash outflows.

When we analyze whether to invest in a particular project or not, or to choose between two or more projects, the most simple & commonly used test is to calculate the NPV. Unlike some techniques where time value of money is not given due importance,  NPV is calculated by keeping into mind the concept of time value of money, that is, the effect of inflation & other factors is also considered here.

How do we calculate the Net Present Value?

To calculate the NPV, we should predict the future cash in flows, ascertain the future cash out flows & determine a rate at which discounting is to be done (to calculate the time value of money). Let us do this with the help of an example:

Eg. ABC Ltd. is planning to invest in one of these two projects. Project – A involving Initial Cash Out flow of Rs. 10 Lacs, estimated cash in flow is say, Rs. 4 Lacs per annum for the next 4 years. Project B involving initial Cash Out flow of Rs. 12 Lacs, estimated cash in flows is say, Rs. 5 lacs per annum for the next 4 years. The rate of discounting to be considered is 15%.

Solution:

ParticularsProject – AProject – B
[A] Cash In flowRs. 4 LacsRs. 5 Lacs
[B] PVAF @ 15% for 4 years2.85502.8550
[C] Present Value of Cash In flows { A * B }Rs. 11.42 LacsRs. 14.28 Lacs
[D] Initial Cash Out flowRs. 10 LacsRs. 12 Lacs
[E] Net Present Value { C – D }Rs. 1.42 LacsRs. 2.28 Lacs

As seen above, the Net Present value for both the projects is positive. So, if we have an option to choose multiple projects, we can opt for both of them. However, if we had a negative NPV for either of these projects, we would have rejected the same.

In the above case, we had to choose only one of the above mentioned projects. So, we will choose the project which offers the maximum NPV & also suits our investment aspects. So, if the management of the company so agrees, choosing Project B over Project A is more beneficial to the company.

Now you must be wondering what should the company do when the NPV comes to be 0, well, when the Net Present Value is 0, it is upon the management of the company to decide whether to accept or reject the project. However, it is generally seen that in such cases, the project is accepted by the management. This is so because the rate of discounting is an approximate guess of the management & is generally a little higher as compared to the actual scenario.

Thus, NPV is a good technique to ascertain whether a project is acceptable or not. 

All about Net Present Value

Gujarat VAT department has issued circular

At CAKART www.cakart.in you will get everything that you  need  to be successful in your CA CS CMA exam – India’s best faculty  video  classes (online or in pen drive) most popular books of best  authors  (ebooks hard copies) best scanners and all exam related information  and notifications.Visit www.cakart.in and chat with our  counsellors  any time. We are happy to help you make successful in your  exams.

www.cakart.in.

www.cakart.in.

Click here to download FREE CA CS CMA books.

Leave a comment

Your email address will not be published. Required fields are marked *