1. Chapter HL
Investment Appraisal

2. Net Present Value
Looking at how much current money will be worth in the future.
Today’s value of an amount of money available in the future.
Use Discounted cash-flow method
Considers how interest rates affect the present value of future cash flows
Look at examples page

3. Advantages of NPV
Opportunity cost and time value of money is considered
All cash flows including their timing are included in the computation
The discount rate can be changed to suit changes in economic variables

4. Disadvantages of NPV
More complicated to calculate than payback period or ARR.
Can only be used to compare investment projects with the same initial outlay
Discount rate greatly influences the final NPV result obtained.

5. Unit 3.8 Assignments Revision Checklist – page 238 – last paragraph
Practice Question – Easy E Booking (EEB) – page 239