NET PRESENT VALUE AND OTHER INVESTMENT CRITERIA
NPV, IRR and paybacks are some of the methods used for investment decisions
- What capital projects should the firm invest in?
- How much should the firm spend?
Note that the goal is to
- maximize value of the firm
- the shareholder’s wealth
- stock price
a. risk free securities issued by the government.
- There is no risk of default.
- They are short term
These two characteristics make it no price risk.
b. Buy at discount
c. Guaranteed face value.
Mutually exclusive projects:
Alternative ways to perform the same task