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NPV and firm value

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When a company elects to invest in a project with a positive net present value, what will generally happen to the value of the company? What will happen to this value when the company invests in a negative net present value project?

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Solution Summary

The solution explains the impact on firm value of NPV.

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NPV represents the net addition to shareholders wealth. The reason is that NPV represents the surplus after all costs including the cost of capital have been accounted for. Thus what is left (which is the NPV) is the net increase in the value of the firm since there is no ...

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