Explain Net-Present-Worth Criterion?
The net- present-worth criterion is a very important and useful method to evaluate investment projects. It helps to determine whether a project is profitable or not. The net present worth of projects is the difference between the present values of all benefits and all costs of the investment. The positive value of the net present worth (NPW) implies that the investment is profitable and the financial position of the businessmen or investor will improve by undertaking the projects. The negative value of the NPW shows that the investment is non-profitable and it indicates a financial loss. If the NPW value is zero, the benefit becomes equal to the cost and the investor become indifferent between the undertaking and not undertaking the investment.
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