sources of positive net present value...

PRESENATION ON SOURCESS OF POSITIVE NPV.

SHAMSHUDDIN.JM Reg No: 4BZ11MBA35

NET PRESENT VALUE Meaning :  Net present value is the present value of net cash inflows generated by a project including salvage value.  When inflows exceed outflows and they are discounted to the present, the NPV is positive. The investment adds value for the investor.

CONT….  projects with a positive NPV would create shareholder wealth, and should be undertaken.  Projects with a negative NPV will destroy shareholder wealth, and should be avoided.

Example:

A company purchase a machinery @ 100/-. Year 1 2 3

Cash in Flow Dis @10% P.v Of CF -50 30 200

0.909 0.826 0.751

-45.45 24.79 150.26

Prrsent ValueOf Cash Inflows =

129.60

LESS: Present Value of Out Flow

-100

NET PRESENT VALUE =

29.60

SOURCES OF POSITIVE NET PRESENT VALUE  Economies of Scale.  Product Differentiation.    

Effective Advertising and Superior Marketing Exceptional Service Innovative Product Features High Quality and Dependability

SOURCES OF POSITIVE NET PRESENT VALUE  Cost Advantage  Accumulated Experience and Comparative Advantage on the Learning Curve  Monopolistic Access to Low Cost Materials  A Favourable Location  More Effective Cost Control and Cost Reduction

SOURCES OF POSITIVE NET PRESENT VALUE  Marketing Reach.  Technological Edge.  Government Policy.  Restrictive Licensing  Import Restrictions  High Tariff Walls