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unvrs, Master's Degree
Category: Business and Finance Homework
Satisfied Customers: 348
Experience:  CFA Level 2 Candidate
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1. According to the text, the NPV rule states that "An investment

Customer Question

1. According to the text, the NPV rule states that "An investment should be accepted if the NPV is positive and rejected if it is negative." What does an NPV of zero mean? If you were a decision-maker faced with a project with a zero NPV (or very close to zero) what would you do? Why?

2. What is a "forecasting error"? Why is it important to the analysis of capital expenditure projects?
Submitted: 5 years ago.
Category: Business and Finance Homework
Expert:  unvrs replied 5 years ago.

unvrs :

1. In strict economic terms, one should be indifferent to the project when the NPV is 0; however, many projects require further considerations. One should reconsider the project and check if it provides a return just equal to the firm's required return.The nature and type of the project should also be considered.

2. Since capital budgeting analysis contain many assumptions in the calculation process, forecasting errors would exist. Forecasting error is the difference between the forecast results from the actual outcomes. It's important for analysts to understand the existence of errors. Sensitivity analysis should be performed to detect the changes in the assumed inputs to better assess each capital budgeting outcomes.

Customer: replied 5 years ago.

I need it the answer a lot earlier and not that short....thanks for your help anyways.

Expert:  unvrs replied 5 years ago.
Okay. Please indicate the length requirement next time.