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Project/Investment Evaluation

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If people evaluated the net present value prior to making an investment decision that he or she would be more able to make an educated decision. Explain this statement.

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Solution Summary

This solution includes an interpretive discussion of the Net Present Value and its effect on decision-making regarding new projects and investments.

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Net present value (NPV) is used to estimate how much a potential project will contribute to shareholder wealth. Maximizing shareholder wealth is one of the management's main goals. According to equation (1-11) (Brigham & Houston, 2007, p. 361), NPV is consisted of one cash outflow, which is the cost of the project, and several cash inflows, which are ...

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