What is the net present value (NPV) approach in the capital budgeting process?
Every year, organizations must use discretion in determining how to allocate limited financial resources between competing capital purchases and projects. Generally, annual CapEx budgets consist of both new and maintenance components, which could be equally important, because many CapEx items arise from the tactical plans and support the institution’s overall organizational strategy.
In an initial post, respond to the following prompt:
What is the net present value (NPV) approach in the capital budgeting process?
Please discuss a real-world application by applying the concepts and calculation method you learned this week.
Make sure your real-world example includes actual numbers (e.g., projected costs, expected cash inflows, discount rate, etc.), and use those numbers to calculate the NPV. Be prepared to interpret the result and explain what it means in terms of investment decision-making.
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