ater than zero and thus positive and reject a project with a net present value that is less than zero, that is, negative net present value projects should be rejected. (Ross et al., 2002). The latter case is in a situation where only one project is being evaluated. In the event were the company is evaluating a number of projects, for which only one will be selected, the decision criteria is to first of all discard all projects with negative net present values and then select the project with the highest net present value among the positive NPV projects. (Ross et al., 2002; Myers and Brealey, 2002).
It measures the change in the net worth of the firm due to the project (Cheng et al., 1994). NPV can also be derived from “discounting the expected future payoff by the rate of returns offered by comparable investment alternatives” (Richard and Bill, 2003). The vital stage of calculating NPV is to estimate the opportunity cost of capital (discounted rate) properly in order to discount future cash flow that forecasted of investment project (Brealey, Myers and Marcus, 2007). Under this method, every project with a positive NPV can be accepted to invest (Frank, 1999). NPV is a superior method of investment appraisal in theory, and recent study approved that it the most preferred tool in practices in management perspectives (Patricia and Glenn’s, 2002). This could because of its major advantages in consideration of time value of cash flows. However, Michael (2004) indicated a weakness in application of NPV, managers face more difficult practical issues—such as the estimation and timing of cash flows. This adjustment could impact on likelihood of project acceptance. Additionally, NPV may fail as the method primary assumes there is no restriction on the amount of company’s investment, yet in practice there is a certain constraint on company’s investment budget, which depends on its size (Frank, 1999).
A simple mathematical illustration of the net present value
Cite this document
(“Strategic financial management Essay Example | Topics and Well Written Essays - 3000 words”, n.d.)
Retrieved from https://studentshare.net/miscellaneous/357406-strategic-financial-management
(Strategic Financial Management Essay Example | Topics and Well Written Essays - 3000 Words)
“Strategic Financial Management Essay Example | Topics and Well Written Essays - 3000 Words”, n.d. https://studentshare.net/miscellaneous/357406-strategic-financial-management.
Cited: 0 times
Net Present Value gives more explicit concerns to the time value of money and it is as well considered more crucial in investment appraisal than the traditional methods of payback and accounting rate of return. Net Present Value is calculated by subtracting the initial…
A study reflects a sound business performance of the company with satisfactory revenue through its sales and this status has been maintained inspite of several challenges and difficulties that the company had to face in the light of changing economic conditions in the business world. The company focuses on maintaining its position in the industry and develops its business with increasing the revenue more than before.
Requirement of capital and necessary investments are inevitable part of finance for any profit making or any non-profit making organisation. Finance plays very crucial role in economic development of any organisation. Emmanuel has explained that finance deals with money and credit employed in business and return on capital and investments.
Second, hedging against catastrophic or extreme risk may reduce the likelihood and the costs of distress, especially for smaller businesses.
Third, hedging against risks may reduce the under investment problem prevalent in many firms as a result of risk averse managers and restricted capital markets.
It has its presence in several countries across the globe including, Americas, Central Asia, Africa and Europe. The Barclaycard UK, operates in tandem with other parts of the flagship company Barclays including UK retail banking,
of competition but has had to dictate and shape organisations in terms of what consumers wants, how and when they want it and what they are prepared to pay for it (Hagan 1996:1).
Kanter (1995:71) on his work of “Mastering Change” argues that success in the present day
In the years 1997 the company was formed by merger between two markets giant namely: Guinness plc and Grand Metropolitan plc. In the FTSE, the company has 18th raked in June 2009 and its market capitalisation touches over £ 23.
“Capital markets are places where companies which need long-term finance can meet investors who have the finance to offer” Finance can comprise of issuance of the new ordinary shares, equity financing, and debt financing. In the debt financing, the organizations have the option to choose from a broad range of the loans and various debt securities.
The paper highlights certain troubles caused by the variation in perceptions of risk by different corporate houses. The importance of risk assessment is evaluated through a qualitative research, by putting forward some risk theories. Quantitative approach is also undertaken as the risks are quantified.
From my analysis of the Company’s current trading and financial position, I gathered the following; 26th October 2014, total sales increased by 11.3% while like- for-like sales increased by 6.3%. The company’s
8 pages (2000 words)Essay
Got a tricky question? Receive an answer from students like you!Try us!
Let us find you another Essay on topic Strategic financial management for FREE!