Explain the theoretical rationale for the NPV approach to investment appraisal and compare the strengths and
- This is a preview of the essay.
To view the full text you must login!
The difference between an investment's market value and its cost is called the Net Present Value of the investment, abbreviated NPV. In other words, net present value is a measure of how much value is created or added today by undertaking an investment.
For a particular firm, it will always have a goal to achieve. From different perspective, the firm's objective various. It could be maximise the size of firm, or maximise customer's satisfaction, or maximise the firm's sale, or maximise profit, or maximise dividend growth. From a finance people's view, the objective of a firm will be maximise shareholders' wealth. In other words, it means to maximise the market price of the company's shares. They are other stakeholders within the business environment, they are: customers, suppliers, employees, creditors, debt holders and government and so on. But if product and labour markets work efficiently, maximising shareholders wealth will benefit society most. The firm will allocate resources to their most productive use and they will also automatically respond to the needs of other stakeholders in order to maximise wealth...