FREE online courses on Capital Budgeting Analysis - Three Economic Criteria
for Evaluating Capital Projects - Net Present Value
The first criterion we will use to evaluate capital projects
is Net Present Value. Net Present Value (NPV) is the total net present value of
the project. It represents the total value added or subtracted from the
organization if we invest in this project. We can refer back to our previous
example and calculate Net Present Value.
Example 10 -
Calculate Net Present Value
Net Investment Outflow
$ (24,100)
Present Value of Inflows 22,709
Net Present Value
$ (1,391)
If the Net Present Value is positive, we should proceed and
make the investment. If the Net Present Value is negative, then we would not
make the investment.
