The NPV and the Management in Sales Forecasts - Essay Example

Most of the companies while making investment in purchasing of assets consider either purchasing directly or purchasing through lease. Company also focus or consider the point what are the expected benefits associated with both of these methods. Therefore this method gives the company or management an opportunity to crit officially evaluate whether the company has to buy this through a loan or by cash in hand. It is very difficult for the management to take that much cash from the company as its affects its liquidity factor.

Therefore this tools helps the management to compare these option and then make a fruitful decision in capital investments or budgeting. In this helps the management to avoid or minimize the potential errors in decision making. Another way in which the NPV factor greatly facilitate to overcome or minimize the potential errors in decision making is Price analysis. Pricing of a product or service is based on many factors like competitor’s pricing, the actual cost incurred in making the final product or services.

And price volume relationship. The pricing analysis helps the management to evaluate all these factors while making the best possible decision. And here as well the NPV serves as a best tool to overcome the errors in decision making. NPV gives a clear picture whether the company can earn the potential cash outcomes from the pricing strategy or how it could be improved. Moreover, NPV helps greatly to the management in Advance Analyses of different issues or areas and makes a positive decision in terms of capital budgeting and decision making.