Project appraisal through discounted and non-discounted cash flow Essay

Project appraisal through discounted and non-discounted cash flow techniques - Essay Example plus and negative values makes it halcyon to understand generation of profits and losses as well as assists decision makers to focus only on the exceedingly positive items, the precious time of management can be saved by foc development on the relevant project (Fortes, 2010 Horngren, 2005). Calculations are comparatively easy and data of any finite period can be easily converted into present value of it. Net present value analysis is derived from any(prenominal) basic realistic and practical assumption it is based on a fact that value of 100 today will be more than the expenditure of 100 after a year. Keeping this assumption in mind a net present value of future cash inflows is calculated using a discounted rate, usually the rate of cost of capital of a company or industry this rate represents the percentage minimum requirement of return by an organization per annum. Annuity factors can a lso be used if cash flows are constant every year. The Net Present Value (NPV) is a useful technique to determine profitability of any item being assessed, but has few limitations as well, it only focuses on factual data that can right off hit the profit generation capabilities of an item and financial aspects only while appraising projects and does not account for the non financial aspects, areas and issue associated to that project whereas, there is a high probability of any decision/ project to get affected by numerous external or internal non-financial events.