The Net Present Value (NPV) is a measure of an investment’s profitability. It can be either positive or negative. Positive NPVs are preferred because they point toward a profitable investment, while negative NPV investments are rejected as they show large losses.NPV is important because it is the best rule to ... Read More

The Value Additivity Principle in NPV states that the value of the total NPV of a bigger project is equal to the summation of all smaller NPVs of projects. In other words, the summation of all smaller NPVs provides the bigger NPV of an investment project. The NPV of a ... Read More

Net Present Value or NPV is a true measure of an investment’s profitability and gain. However, like all the other methods, the NPV calculation has its own merits and demerits.Merits of NPV MethodFollowing are the merits of using the NPV Method as an investment evaluation method −NPV deals with the ... Read More

The Discounted Cash Flow (DCF) method is a widely used technique for valuation in the financial world. The extended procedure of Net Present Value (NPV) is an exclusively used technique in valuing capital investment projects. These projects usually cover the purchase of machinery and equipment as well as the valuation ... Read More

Capital Budgeting Decisions are critical in nature, and they are complex too. Capital budgeting decisions are not taken frequently and since large funds are involved, the decisions must consider the long-term impact on the profitability and cost structure of the firm.Another important note about capital budgeting decisions is that they ... Read More

Usually, the investment decision rules are known as capital budgeting decisions or investment criteria. To determine the financial worth of an investment project, sound capital budgeting rules should be followed.The most important property of a good capital budgeting technique is that it should maximize shareholders’ wealth. However, there are some ... Read More

In finance and economics, investments have been categorized into various sectors. Independent and contingent investments are two broad subjects of investment decisions. Usually, there is no relation between independent and contingent decisions, but they may be considered two broad aspects of investments that determine the nature and characteristics of investments ... Read More

Delta is the measure of price movement of an options contract when the value of the underlying stock moves ${\$}$1 in value. Many people would assume that the value of an option will also move ${\$}$1 when the value of the underlying stock moves ${\$}$1. However, this is not true. ... Read More

There is always an inherent risk in all kinds of investments and options contracts are no different. When a trader invests money in options, he can be either a risk-taker or a risk-averse investor.Risk Neutrality is a term used for traders who are indifferent to the risks of losing money. ... Read More

Hedging is a popular way to protect investments. It helps in mitigating risks and provides optimum exposure to risks. When a portfolio is hedged, it is often required by the investors to know about the portion of the total portfolio that is risk protected. This is where the hedge ratio ... Read More