Need One Response for each discussion-finance

Need a one response for each discussion post in 50 to 75 words

 Discussion post 1

Payback Period: The payback period refers to the amount of time it takes to recover the cost of an investment. Simply put, the payback period is the length of time an investment reaches a break-even point. The desirability of an investment is directly related to its payback period. Shorter paybacks mean more attractive investments. The payback period is the cost of the investment divided by the annual cash flow. The shorter the payback, the more desirable the investment. Conversely, the longer the payback, the less desirable it is.

Net Present Value: Net Present Value (NPV) is the value of all future cash flows (positive and negative) over the entire life of an investment discounted to the present. NPV analysis is a form of intrinsic valuation and is used extensively across finance and accounting for determining the value of a business, investment security, capital project, new venture, cost reduction program, and anything that involves cash flow.

Internal Rate of Return: Internal rate of return (IRR) is the discount rate that makes the net present value of all cash flows (both positive and negative) equal to zero for a specific project or investment.

IRR: What Is It Used For?

The internal rate of return is used to evaluate projects or investments. The IRR estimates a project’s breakeven discount rate or rate of return, which indicates the project’s potential for profitability.

Based on IRR, a company will decide to either accept or reject a project. If the IRR of a new project exceeds a company’s required rate of return, that project will most likely be accepted. If IRR falls below the required rate of return, the project should be rejected.

IRR Formula?

You can use the following formula to calculate IRR:

0 (NPV) = P0 + P1/(1+IRR) + P2/(1+IRR)2 + P3/(1+IRR)3 + . . . +Pn/(1+IRR)n

Profitability Index Definition: Profitability index method measures the present value of benefits for every dollar investment. In other words, it involves the ratio that is created by comparing the ratio of the present value of future cash flows from a project to the initial investment in the project. The Profitability Index Method is often times compared similarly to the Net Present Value Method for their close proximity. One should use caution when utilizing both the NPV and profitability index methods in tandem. Often times, it has been found that both methods can rank projects in a different way. One project could possibly be ranked number 1 for one of the methods while it ranks dead last in the other. Use digression when using both in tandem.

There is relationship between profitability index and net present value method. If profitability index >1, the NPV is positive. If profitability index <1, NPV is negative. The profitability index is a relative measure of an investment’s value while NPV is an absolute measure.

Discussion Post 2

The payback period depicts the duration which is required to recoup the investment and work for the business investments. Within the workplace, there are opportunities that come around to decide the project and the returns which can be retrieved back in the shortest time. The criteria are important criteria which ensure that the positive cash flows are received and diminished over a period of time (Benamraoui, 2017).

Net present value (NPV) is defined to determine the current value which is dependent on the future cash flows. It can be generated for the project which includes capital investments and it can be used to ensure that the capital budgeting establishments are projected to claim the greatest profit for the company. NPV is the term used in the longer-term projects which can be used to multiple cash flows and then generate revenues in the system (Djuhatmoko, 2019).

The internal rate of return is a metric used to financially analyze the profitability of potential investments? There are discount rates that make the cash flow analysis an important formula for NPV does. IRR is the annual rate of growth that is expected to generate and except it sets the NPV. IRR is the ideal calculation that is used for analyzing the capital budgeting projects and understands the situation of the potential rates which can be fulfilled in the annual return over time.

The profitability index measures the ratio between the present value of future cash flows and the initial investment. There are different and useful tools which can be used in ranking different projects and they can be used to showcase the value which is been created per unit of investment (Hopkinson, 2017).