Provide two examples of NPV calculations that support your position.

By
Responsive Centered Red Button

Need Help with this Question or something similar to this? We got you! Just fill out the order form (follow the link below), and your paper will be assigned to an expert to help you ASAP.

Order Form

For this discussion:
Elaborate on why the net present value (NPV) of a relatively long-term project is more sensitive to changes in the cost of capital than is the NPV of a short-term project.
Provide two examples of NPV calculations that support your position.
Be sure to respond to at least one of your classmates’ posts. Cite any resources used.
Also, respond to my classmate’s post below:
Miriam Waller
Net Present Value (NPV) is the value of all cash flows over the life of an investment when discounted to its present worth. Discounting activity to its present worth is done because of the recognized assumption that a sum of money in the present day—money now—is worth more than the identical sum of money later.
The time value of money is a key factor in determining investment strategies planned over time. The reasons why money in hand is valued over the same amount of money down the road include: opportunity costs (what else could we have done with the money?); interest rates; inflation; type of investment; risk levels; rising prices; or other unforeseen factors (i.e. a pandemic; supply chain issues; war).
In addition, money received now is more valuable because it can be invested and earn interest so its worth will increase over time. Still, if two different investment projects are being considered, if the cost of capital is high the entity might make the choice to invest sooner than later compared to the cost being low.
The reason for the decision would be based upon the assumption that high cash flows can be re-invested at the high cost of capital and compounded over the life of the investment.
The reason for this is the same, i. e. high cash flows are assumed to be re-invested at the cost of capital and thus compounded over the remaining life of the project.
Example 1:
A hospital is considering a purchase of equipment to streamline data retrieval systems. After calculating the NPV of the investment considering all factors like those mentioned above, if the net present value promises a return rate higher than the minimum rate of return, then the investment should proceed. In other words, if generated revenues along with reduced future costs can be determined then it’s a sound investment.
Example 2:
Similarly, if an investment in technology can increase efficiency, reduce current costs (i.e. labor), and if the life of the investment can be projected to last a sufficient amount of time, then it should be pursued. And if installation, training, and implementation are assumed to be cheaper now than at a future time while increasing cash flow, again, the project should warrant investment.
Sources:
https://corporatefinanceinstitute.com/resources/knowledge/valuation/net-present-value-npv/
https://www.investopedia.com/ask/answers/05/npv-irr.asp
https://www.investopedia.com/articles/03/082703.asp

How to create Testimonial Carousel using Bootstrap5

Clients' Reviews about Our Services