Characteristics of NPV
1.
Based on Cash flow
Net
Present Value based on cash flow therefore it is a better measure than
accounting rate of return which is based on accounting profit because accounting
profit can be subjective.
2.
Time Value of Money
This method give do consider to time
value of money which is a fundamental concept in investment appraisal. Therefore
it a superior than accounting rate of profit and payback period which ignore
the time value of money.
3.
Absolute Results
This method provides absolute results and this information is
very useful while considering the huge investment projects.
4.
Require Special Knowledge
This method requires special
knowledge to calculate and it is also require special skill to understand this
method and therefore this method is deemed to be difficult to calculate &
understand.
5.
Discount Rate Determination
This method requires discount rate
and sometime it is really difficult to determine the exact discount rate that
can be used to calculate the NPV.
