Accept-reject Rule Homework Help

Accept-reject Rule 

The decision rule is that if the present value of the sum total of the compounded reinvested cash inflows (pvrs) is greater than the present value of the outflows (PVO) the proposed project is accepted otherwise not. Symbolically

                                                         PVTS > PVO accept
PVTS < rvo reject
The fi~ would be Indifferent if both the values are equal. Thus, since the pvrs of Rs 14,156.31 exceeds the original outlay of Rs 10,000, we would accept the assumed project under the 1 V criterion.A variation  of the terminal value method (Tv) is the net terminal value (NlV). Symbolically it . can be represented as l'(JV = (P\TI – PYO). rf the NlV is positive, accept the project, if the NlV is negative, reject the project. In the above example, the NlV is positive, Its value is Rs 4, IS 6.31. Therefore. the project is acceptable. The NVP method is similar to NI’Y method, with till’ difference that while in the former, values are compounded, in the biter, they are discounted, Both the methods will give the same results provided of course the same figures have lx-en discounted as have been compounded and the same interest rate (rates) is used for both discounting and compounding,

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