00:01
Npv and irr are the two methods for making capital budgeting decisions for choosing the projects and their investment when the main aim is to increase the shareholders ' wealth.
00:33
So, in case of npv, we identify all cash flows, inflow as well as outflow.
00:46
Then we determine or assume and determine appropriate discount rate.
01:00
Then we use this discount rate to calculate present value of all cash flows.
01:16
Then adding all adding together all the pvs present values.
01:27
Then we make a decision on the project.
01:31
Suppose npv is positive, we go ahead with the project and if the npv comes negative, we do not proceed with the project.
01:45
Well, the companies also use weighted average cost of capital wacc method as appropriate create discount rate for capital projects.
02:05
It is a function of firm's capital structure which accountability for debt, equity and preferred stock.
02:23
The total weight is being considered...