Define net present value (NPV) and describe how it is used to ...

[audie]

Define net present value (NPV) and describe how it is used to evaluate capital budgeting proposals.

Question 2

A vertical merger is a merger between firms that operate at different but related levels in the production and marketing of a product.
 
 Indicate whether the statement is true or false

[steff9894]

Answer to Question 1

The most commonly used method to evaluate capital budgeting proposals is to compute their net present value (NPV).
The NPV of an investment proposal is found by adding the present values of all of its estimated future cash flows and subtracting the initial cost of the investment from the sum. A positive NPV means that the present value of the expected cash flows from the project is greater than the cost of the project. In other words, the benefits from the project exceed its cost. Financial managers are likely to approve projects with positive NPVs. A negative NPV means that the present value of the expected future cash flows from the project is less than the cost of the investment. This would indicate that the cost of the project outweighs its benefits. Financial managers would almost certainly reject proposals with negative NPVs.

Answer to Question 2

True