For a startup business, the application of the NPV and IRR techniques relies heavily on...
60.1K
Verified Solution
Link Copied!
Question
Accounting
For a startup business, the application of the NPV and IRR techniques relies heavily on projected cash flows which can be uncertain. If the source of funding is from internal savings, then the cost of capital would be based on the opportunity cost of such funds. Startup businesses usually face a lot of challenges in the initial stages of existence and face a high risk of loss. Over time and with the advantage of the learning curve, the hiccups may be overcome, and the company may progress towards higher levels of production and profitability associated with a lower risk. Since the computation of the net present value is based on the same level of risk throughout the project's entire duration, does it invalidate the process? Discuss why or why not?
For a startup business, the application of the NPV and IRR techniques relies heavily on projected cash flows which can be uncertain. If the source of funding is from internal savings, then the cost of capital would be based on the opportunity cost of such funds. Startup businesses usually face a lot of challenges in the initial stages of existence and face a high risk of loss. Over time and with the advantage of the learning curve, the hiccups may be overcome, and the company may progress towards higher levels of production and profitability associated with a lower risk.
Since the computation of the net present value is based on the same level of risk throughout the project's entire duration, does it invalidate the process? Discuss why or why not?
Get Answers to Unlimited Questions
Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!
Membership Benefits:
- Unlimited Question Access with detailed Answers
- Zin AI - 3 Million Words
- 10 Dall-E 3 Images
- 20 Plot Generations
- Conversation with Dialogue Memory
- No Ads, Ever!
- Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
Other questions asked by students
StudyZin's Question Purchase
1 Answer
$0.99
(Save $1 )
One time Pay
- No Ads
- Answer to 1 Question
- Get free Zin AI - 50 Thousand Words per Month
Best
Unlimited
$4.99*
(Save $5 )
Billed Monthly
- No Ads
- Answers to Unlimited Questions
- Get free Zin AI - 3 Million Words per Month
*First month only
Free
$0
- Get this answer for free!
- Sign up now to unlock the answer instantly
You can see the logs in the Dashboard.