Capital Budgeting B10-129x

What is the net present value approach to capital project evaluation?

• It takes into account the cash inflows, cash outflows, and initial outlay of the project.
• The future cash inflows and outflows, that is, beyond year 0, are discounted, and the present value is determined.
• The present value is compared against the initial outlay, to arrive at a net present value.
• The net present value is used to determine if the project should be accepted or rejected.