Explanation

A strength of NPV is that it considers all cash flows.

Both inflows and outflows, over the project's life.

It providing a comprehensive picture of a project's value.

Explanation

The primary goal of using NPV is to maximize shareholder value.

By selecting projects that add value to the firm.

This evaluating if returns exceed costs.

Explanation

In NPV analysis, 'salvage value' is the estimated value of a project's assets at the end of its life.

It is also known as the final cash inflow or residual value.

It is included as a cash inflow in the NPV calculation.

Explanation

Extending the project life can increase NPV, but it depends on the cash flow patterns.

If the extended period generates more cash inflows than outflows, NPV increases.

Explanation

NPV calculation requires initial investment, future cash inflows, and discount rate, but not annual profit margin.

Profit margin is a ratio used to evaluate profitability, but it's not a direct input in the NPV formula.

Explanation

A project with a positive NPV may be rejected due to high initial investment or better alternative projects with higher NPVs.

If other projects have higher NPVs, they may be preferred.

Explanation

Inflation decreases NPV by reducing the present value of future cash flows.

As the purchasing power of money earned in the future is eroded by inflation.

This means that the value of future cash flows is lower in real terms, leading to a lower NPV.

Explanation

The present value factor for year 1 at a 10% discount rate is 1 / (1 + 0.10) = 1 / 1.10 = 0.91.

This means that $1 received one year from now is worth $0.91 today, assuming a 10% discount rate.

Explanation

Future cash flows are discounted in NPV calculations to their present value using a discount rate.

It accounting for time value and risk.

Explanation

A higher NPV indicates higher profitability.

It means that the project is expected to generate more value or returns than its costs.

This making it a more attractive investment opportunity.