Write 3 page essay on the topic Principles of Finance Bachelor.Download file "Principles of Finance Bachelor Essay" to see previous pages... This tool also includes pay back period, and profitability

Write 3 page essay on the topic Principles of Finance Bachelor.

This tool also includes pay back period, and profitability index which are other common technique used by management for making investment decision.

Most of the companies while making investment in purchasing of assets consider either purchasing directly or purchasing through lease. Company also focus or consider the point what are the expected benefits associated with both of these methods.

Therefore this method gives the company or management an opportunity to critically evaluate whether the company has to buy this through loan or by cash in hand. It is very difficult for the management to take that much cash from the company as its affects its liquidity factor. There fore this tools helps the management to compare these option and then make a fruitful decision in capital investments or budgeting. In this helps the management to avoid or minimize the potential errors in decision making.

Another way in which NPV factor greatly facilitate to overcome or minimize the potential errors in decision making is Price analysis. Pricing of a product or service is bases on many factors like competitor's pricing, the actual cost incurred in making the final product or services. And price volume relationship. The pricing analysis helps the management to evaluate all these factors while making an best possible decision. And here as well the NPV serves as a best tool to over come the errors in decision making. NPV gives a clear picture whether the company can earn the potential cash outcomes from the pricing strategy or how it could be improved.

Moreover NPV helps greatly to the management in Advance Analyses of different issues or areas and makes a positive decision in terms of capital budgeting and decision making. These are:

NPV WITH MONTE CARLO SIMULATON:

NPV also help management in other areas to evaluate the possible outcomes of the project. A Capital investment in any project of the business is not a black box. However its results, outcomes or outflow depends on many factors. Among these factors some factors are more relevant than another. The NPV helps the management to make an analysis and evaluate the investment drivers and technique which helps to minimize the potential errors in this context. Techniques like Monte Carlo simulation, sensitivity and risk analysis and other techniques helps tremendously to reduce or overcome the uncertainty of any project final outcomes.

3. SALES FORECAST STIMULATION:

Furthermore the NPV helps the management in Sales forecasts, as it gives future projection which contains errors. The best management or sales forecasters try to minimize these potential errors as much as they can to bring yield for the company.