Net Present Value (npv)
By: piscis314 • March 20, 2015 • Term Paper • 392 Words (2 Pages) • 1,404 Views
Our company is thinking about acquiring another corporation. We have narrowed it down to two choices and the cost of each choice is $250,000. This amount is our entire capital budget, so acquiring both corporations will not be an option.
This paper will review the financial information of both companies to help us decide which one is the best choice to acquire. To help us make the best choice, we will define, analyze, and interprets the Net present value (NPV) and the Internal rate of return (IRR) for both companies. We will present the rationale behind each item and why it supports our decision.
Capital Budgeting
When a business wants to determine what type of investment will benefit their company and increase their profits, they conduct a process known as Capital Budgeting. This process allows them to analyze their investments’ cash flows and expenditures, with the overall goal of making an informed decision on what project will produce the most profits.
Two of the techniques to analyze the financial standing of a company used in capital budgeting are Net Present Value and Internal Rate of Return.
Net Present Value (NPV)
The Net Present Value, or NPV, explains the present value of money today to the present value of money in the future. NPV shows us that money today is more valuable than money tomorrow because we can use money today
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