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We have reviewed the four methods of investment appraisal techniques:

Payback
Accounting rate of return
Net Present Value
Internal Rate of Return

The pros and cons of the payback, accounting rate of return and internal rate of return have been explained.
Fundamentally, the greatest disadvantage of the payback and accounting […]

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The profitability index is an alternative way of stating the net present value (NPV).
It takes the present value of the cash-flows and divides them by the initial capital outlay.
i.e.: Profitability Index (PI) =Present value of cash flows / Initial cash outflow

Interpretation:
If […]

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In the earlier articles, we have looked at how we compute NPV and IRR and also understand how to interpret the individual result.

One very good point is that both NPV and IRR are able to eliminate the greatest disadvantage of ignoring the […]

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In the previous article on NPV, we noted that a positive NPV denotes that a project can be accepted as it generates excess returns over its cost of finance. Hence, vice-versa, we cannot accept a negative NPV as it cannot generate a […]

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In basic term, net present value (NPV) of an investment is the difference between:
The present value of future cash flows and the present value of the initial capital expenditure required to implement the project.
Say for example the following project having the follow […]