Final answer:
The comparison of the net present value on the investment of a company in a plant and equipment is an application of present discounted value analysis. Present discounted value (PDV) is a widely used tool to compare present costs with the PDV of future benefits. It helps in evaluating the profitability and viability of investments.
Step-by-step explanation:
The comparison of the net present value on the investment of a company in a plant and equipment is an application of present discounted value analysis.
Present discounted value (PDV) is a widely used analytical tool outside the world of finance. It is used when a business needs to compare the present costs of making an investment to the PDV of future benefits. PDV helps in evaluating the profitability and viability of investments by considering the time value of money.
For example, in this case, the company would compare the present costs of $5 million in the plant and equipment investment with the PDV of the future benefits it would generate. If the PDV is positive, it indicates that the investment is expected to generate more value than its initial cost, making it a favorable investment.