Ashton is working on a project at PowerTek Inc., a well-known multinational corporation. He uses capital budgeting to estimate the project's future cash flows. He finds that the present value of the estimated future cash flows is greater than the cost of the project. How likely is he to gain approval from the board?

Question

Isabelle Zamora

Business

21 May, 11:50

Ashton is working on a project at PowerTek Inc., a well-known multinational corporation. He uses capital budgeting to estimate the project's future cash flows. He finds that the present value of the estimated future cash flows is greater than the cost of the project. How likely is he to gain approval from the board?

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Answers (1)

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Cadence Pratt · Answer 1

He will definitely gain approval, due to the positive net present value.

Explanation:

Net present value -

It is the difference in the present value of the inflow of cash and the outflow of cash, in a specified time period.

The term net present value is used in the capital budgeting in order to analyse the profit.

In case, the value for future cash flow is more than cost of the project, it leads to a positive net present value.

And,

In case, the value for future cash flow is less than cost of the project, it leads to a negative net present value.

Positive net present vale, indicates more profit.