ECONOMICS

Detailed explanation-1: -Present value (PV) is the current value of a future sum of money or stream of cash flow given a specified rate of return. Meanwhile, net present value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows over a period of time.

Detailed explanation-2: -For example, if a security offers a series of cash flows with an NPV of $50, 000 and an investor pays exactly $50, 000 for it, then the investor’s NPV is $0. It means they will earn whatever the discount rate is on the security.

Detailed explanation-3: -The 10% discount rate is the appropriate (and stable) rate to discount the expected cash flows from each project being considered. Each project is assumed equally speculative. The shareholders cannot get above a 10% return on their money if they were to directly assume an equivalent level of risk.