ACC 312 Study Guide - Midterm Guide: Net Present Value
Document Summary
Maximisation of shareholder wealth continues to be the prime objective with which managers of corporations are charged. The extent to which success in particular performance measures align with shareholder wealth is particularly relevant. Equally important are the ways in which managers are motivated to maximise shareholder wealth. In most organisations managerial remuneration provides the link between the measures of financial performance and shareholder value. If we assume that the organisation"s objective is to maximise shareholder wealth then this will be achieved if new projects are taken on and existing projects are allowed to continue only if they create value. Investment in capital projects may be made only on the basis of choosing those with a positive net present value (npv). However, npv can"t be applied for remuneration schemes because it is a summary measure based on projected cash flows and not realised performance.