Management and Organizational Studies 2310A/B Chapter Notes - Chapter 9: Net Present Value, Cash Flow, Decision Rule

• School: Western University
• Department: Management and Organizational Studies
• Course: Management and Organizational Studies 2310A/B
• Professor: Nick Khanert

Document Summary

Net present value (npv): difference between an investment"s market value and its costs, a measure of how much value is created or added today by undertaking investments. ,000 house with ,000 of home improvements, cost total ,000 but can be sold on the market for ,000. For an investment to be worth it, it must have a positive npv (value is greater than costs) More difficult to find the market price (or value) of something that is not a common investment, must look at most comparable investment. Discounted cash flow (dcf) valuation: process of valuing an investment by discounting our future cash flow. The net present value rule: an investment should be accepted if the new present value is positive and rejected if it is negative. Payback period: the amount of time required for an investment to generate cash flows to recover its initial costs.