Financial Decision Making Essay Example | Topics and Well Written Essays - 3250 words

Financial stopping point Making - Essay ExampleThe company can also increase or improve on its sales so that however much the payments be, the receipts will still be more in order to for the company to meet its current liabilities. In case of surplus, the company can plough blanket the surplus into investment and in order to increase forthcoming sales hence better future receipts. Net get Value is the difference between the present take account of the cash inflows and the present survey of the net outflows. Project cash flows are discounted using an appropriate rate which is the minimum rate of supply required by the investor. In the case of these two projects Alpha and Beta projects, the discounting rate is 10% which is employ to calculate the discounting factors with the formula 1/(1 + r)n where r is the discounting rate and n is the number of years. The appropriate cash flows are the after impose cash flows, therefore the net cash flows should be estimated on the after t ax basis. However, in these projects, there was no tax involved and no project had a residual value after the completion period of 5 years. Computation of cash flows requires a special treatment of non-cash expenses such(prenominal) as depreciation though in these projects, there is no depreciation considered. However, in case of depreciation, it has an validatory effect on the cash flow since it is a tax deduction expense. The general criteria for Net Present Value is that the project with a negative net present value should be undertaken since it increases the wealth of the shareholders and a project.