The most suitable payment option of the two can be chosen with the help of present value concept. Harriet should choose the option which provides the lowest cost to be paid for the purchase of TV. The first option involving a complete payment of 899 today is to be compared with the second option suggesting payment of 50 in the beginning with 40 to be paid every month for the next 2 years. The present value of 899 to be paid today is simply 899. However, the present value of 50 today + 40 monthly for 24 months needs to be calculated. For this purpose the values of monthly payment needs to be discounted back at the rate of return Harriet expects to earn on an alternative investment. This would provide the present value of that series of payment that the purchase of TV requires. Because of the fact that there is equal monthly outflow, the NPV can be calculated with the help of the following formula:
The above calculation suggest that Harriet will actually be paying 981 as the total cost of purchasing the TV if she decides to accept the second option i.e. 50 plus equal monthly payment for the next 2 years. However, if Harriet decides to pay the cost of TV today, she would only be paying 899. This illustrate that Harriet will have to pay 80 in excess of the cost of TV if she agrees to pay in future instalments.
Hence, on the basis of the abov...
Hence, on the basis of the above calculations, it is advised that Harriet should pay the cost of TV today i.e. 899 because of the fact that she will have to bear higher cost if she pays in instalments.
Limitations of NPV as a Method of Investment Appraisal
Despite the fact that Net Present Value or NPV serves to be the most important of all the available investment appraisal techniques, there happen to be several limitations of this method. The first drawback of using NPV as investment appraisal is this method's reliance on discount rates which should represent the opportunity cost of capital. This opportunity cost of capital might be the cost of funds employed in the investment, rate of return on alternate investment and inflation etc. The determination of a correct discount rate is very important in the calculation of NPV as it is the rate which is used to discount back the value of future cash inflows to their present values. An inaccurate estimation of discount rate will lead to acceptance of a wrong project or rejection of a right one.
Another important point to be considered in calculation of NPV is that the method does not consider risk involved in accepting a project. It just evaluates a project on the basis of time value of money. However, there are several risks that are involved in starting a new project other than the time value of money such as business risk, financial risk, market risk, industry risk etc. A high NPV project might be having huge risk as compared to a low NPV project. The decision criteria made solely on the basis of NPV with no consideration for project risk can be misleading. Even if a risk premium is added to the discount rate, NPV will assume that the risk rate
The concept of net present values can be used in this situation to advise Harriet on the most appropriate action to take. Harriet has been presented two options to pay off the cost of TV i.e. either to pay in the lump sum 899 today or pay 50 in the beginning and 40 for the next 24 months…
Prices of the products and the services have immense importance in our life. The term market price can be defined as the price of the products or the services that are prevailing in the market. In any organization, the market price is of great importance and the financial manager has the responsibility to observe carefully the price related scenario and make decisions based on them with the aim that it creates benefits in favor of the organization.
Several branded beer companies like Heineken, Azzuro and Becks and Nastro have emerged in the scene to compete with each other in regards to gaining an increased market share for their products. In this regard the paper focuses to infer into the reasons which were leading to a decline in the market share of the beer brand Heineken in the Italian region where it once stood as the market leader of beer brands in the premium consumer segment.
The writer claims that the main objective of marketing communication can be derived in a simpler way with the understanding of the customers as well as brand building through effective handling of knowledge. The market research will help to find the effect of different market research technique used by the company.
It is perhaps not surprising, therefore, that some sociologists have criticized these approaches for understanding the role of individual and communicative action in society.
"The concept of communicative action presupposes the use of language as a medium for a kind of reaching understanding, in the course of which participants, through relating to a world, reciprocally raise validity claims that can be accepted or contested." p.99.
It is this factor that is referred to as the present value interest factor (PVIF). When discounted at a given discount rate (r) over a given number of periods (p) it is then denoted as PVIFr%np. np means 'no. of periods'.
2. 'Io' is the initial cash outlay.
fer can be a bilateral one which means it is between two people (face to face) for example when a head teacher οf a school wrights to a student offering them a place at their school this offer can only be accepted by that specific pupil. If an offer is made to a group it can be
NPV method recognizes the fact that a pound today is worth more than a pound tomarrow. NPV is ‘a calculation in dollars of the present value of all future cash flows from a project.It is roughly analogous to the concept of profit.
The disorder nearly affects all human senses including sight, hearing and sense of smell, thus making it difficult for victims to respond to environmental stimuli. Cerebral palsy is usually characterized by its ability to make
A person has $100 saved up in a cookie jar and leaves it there for five years will lose money because those $100 will not have the same purchasing power five years into the future. Using the net present value table can help a person determine how much
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