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The investment adds value for the investor.  When inflows exceed outflows and they are discounted to the present. the NPV is positive.NET PRESENT VALUE Meaning :  Net present value is the present value of net cash inflows generated by a project including salvage value. .

 projects with a positive NPV would create shareholder wealth. and should be undertaken.CONT…. and should be avoided.  Projects with a negative NPV will destroy shareholder wealth. .

v Of CF -50 30 200 0.60 -100 29.26 129.751 -45.909 0.826 0. Cash in Flow Dis @10% P.60 Prrsent ValueOf Cash Inflows = LESS: Present Value of Out Flow NET PRESENT VALUE = .Example: Year 1 2 3 A company purchase a machinery @ 100/-.79 150.45 24.

    Effective Advertising and Superior Marketing Exceptional Service Innovative Product Features High Quality and Dependability .SOURCES OF POSITIVE NET PRESENT VALUE  Economies of Scale.  Product Differentiation.

SOURCES OF POSITIVE NET PRESENT VALUE  Cost Advantage  Accumulated Experience and Comparative Advantage on the Learning Curve  Monopolistic Access to Low Cost Materials  A Favourable Location  More Effective Cost Control and Cost Reduction .

 Government Policy.  Restrictive Licensing  Import Restrictions  High Tariff Walls .  Technological Edge.SOURCES OF POSITIVE NET PRESENT VALUE  Marketing Reach.