NPVTrade-offs Benefits Considers cash flows,not profits Considers all cash flows Recognizes time value of money Drawbacks Requires detailed long-term forecast of cash flows NPV is considered to be the most theoretically correct criterion for evaluating capital budgeting projects. A project's NPV is expected to increase the wealth of the firm's current shareholders SJTU ACEM Instructor:Tangzongming 2014 spring 11-11NPVTrade-offs Benefits Considers cash flows, not profits Considers all cash flows Recognizes time value of money Drawbacks Requires detailed long-term forecast of cash flows NPV is considered to be the most theoretically correct criterion for evaluating capital budgeting projects. A project’s NPV is expected to increase the wealth of the firm’s current shareholders SJTU ACEM Instructor:Tangzongming 2014 spring 11-11