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Describe how the NPV rule is related to a cost-benefit analysis, and to the Valuation Principle.

Asked by: Chandra Johnson 457 days ago - 1 Answers - 1963 views

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Net Present Value is one of many valuation theories used to evaluate whether a project is worthwhile. When performing NPV analysis, one takes into account the initial and ongoing costs (cash outflow) as well as the expected revenue (cash in-flows). If the NPV is positive, the project should be undertaken. If it is negative, the project should not be approved.

Furthermore, you can compare the NPV’s of multiple projects to see which is the most rewarding.

As you can see, the NPV rule is a form of cost-benefit analysis, as well as a valuation principle in itself.

Answer by Rick 195 days ago

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