Solutions to Assignments
BCOE - 143 Fundamentals of Financial Management
Question No. 2
Calculate the NPV of a project which has an initial investment of Rs. 20,00,000/-, having a life of five years. The cost of capital is 8%. Should the company accept the project? Explain the reasons.
When NPV is positive, it adds value to the firm. When it is negative, it subtracts value. An investor should never undertake a negative NPV project. As long as all options are discounted to the same point in time, NPV allows for easy comparison between investment options.
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