NET PRESENT VALUE Perhaps the mostly widely used technique for analyzing a potential investment opportunity or project

is the net present value of cash flow or NPV approach. Using the NPV of cash flow technique we would discount all cash flows in our business case at the opportunity cost of capital - in most cases the weighted average cost of capital for a company. The business rule that is applied with this analysis is to accept all projects or investments where the NPV of cash flows is greater than zero - so we're looking for positive NPVs.NPV compares the value of a dollar today to the value of that same dollar in the future, taking inflation and returns into account. If the NPV of a project is positive, it should be accepted. However, if NPV is negative, the project should probably be rejected because cash flows will also be negative. advantages Of Net Present Value (NPV) 1. NPV gives important to the time value of money. 2.In the calculation of NPV, both after cash flow and before cash flow over the life span of the project are considered. 3. Profitability and risk of the projects are given high priority. 4. NPV helps in maximizing the firm's value. Disadvantages Of Net Present Value (NPV) 1. NPV is difficult to use. 2. NPV can not give accurate decision if the amount of investment of mutually exclusive projects are not equal. 3. It is difficult to calculate the appropriate discount rate. 4. NPV may not give correct decision when the projects are of unequal life.