Concept of Compounding DQ2 Positive NPV Essay Example | Topics and Well Written Essays - 250 words - 1

Concept of Compounding DQ2 Positive NPV - Essay Example d amount of money or an expected cash flow; for instance if a person has $500 that money will be worth less in the future because money depreciates due to the effect of inflation. Based on the time value of money present value table $500 discounted at 3% will be worth $431.30 five years from now (Besley & Brigham, 2000). The NPV value technique is often used by managers when making decisions regarding capital projects. A project should only be accepted if its NPV is above cero (Garrison & Noreen, 2003). A positive net present value is the desirable outcome. When the NPV is negative a project should be rejected because a company would lose money by accepting such a project. The process to calculate net present value involves the use of present value tables to find the factoring factor. Another way to calculate the present value of an amount of money is by using financial calculators. Graphic calculators such as the Ti-89 titanium have integrated financial calculators in its systems which are very easy to use. The discounting rate a company uses depends on the risk the company is willing to take. Some companies require a higher discounting rate than others due to the industry in which they