How accurate do you think a company's estimates of the net present value of a proposed project are? Refer to both the initial investment and to the components of the cash flow: revenues, operating expenses, depreciation, taxes, and the cost of capital to use for the computation of the present value.
Keep in mind that NPV is the value in today's dollars of cash flows to be received some time in the future minus what we have to pay today to get those cash flows.
Which of the following do you think would give you the most accurate NPV calculation: (a) a brand new retail startup (b) a pharmaceutical company introducing a new drug (c) a company with a successful product in Chile trying to introduce it to the USA.
Do research on the Internet and show the reference for the information. Don't forget to respond to a colleague's posting also.
Professor's Note: In addition to searching the Internet for text related to this threaded discussion, please watch the following videos (click on the following link to access these videos) and post your comments.
http://www.youtube.com/watch?v=jylJ2r9bklE Episode 99: How to Calculate Net Present Value
http://www.youtube.com/watch?v=uNcBWALtLHU What is NPV?