Unformatted text preview: decision rule says to invest in projects when the net present value is greater than zero. When a firm can find a project with a positive NPV, the project offers a return that exceeds shareholders’ expectations. A firm that consistently finds positive-NPV investments will consistently surpass shareholders’ expectations and will enjoy a rising stock price. Conversely, if the firm makes an investment with a negative NPV, the investment will disappoint shareholders (Nitzan, & Bichler, 2009). A firm that regularly makes negative-NPV investments will see its stock price lag as it persists in generating lower-than-required returns for stockholders. The net present value approach provides a direct estimate of the increase or decrease in shareholder value resulting from a particular investment. An NPV of $1 million means that $1 million in shareholder value (market capitalization) is being added to the firm....
View Full Document
This note was uploaded on 10/15/2011 for the course FIN 550 taught by Professor Smith during the Spring '11 term at Berklee.
- Spring '11
- Net Present Value