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....
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- Spring '11
- Net Present Value, future cash flows