BU393 Chapter Notes - Chapter 7: Capital Budgeting, Net Present Value, Opportunity Cost
Document Summary
Chapter 7 net present value and other investment rules. Accept a project if the npv is greater than zero and vice versa. The value of the firm rises by the npv of the project. The value of the firm is merely the sum of the values of the different projects, divisions, or other entities within the firm value additivity. The contribution of any project to a firm"s value is simply the npv of the project. The discount rate on a risky project is the return that one can expect to earn on a financial asset of comparable risk. The discount rate is often referred to as the opportunity cost. Npv uses all the cash flows of the project. A minus sign in front of a number indicates a cash outflow. Timing of cash flows within the payback period. The payback period is acceptable when making relatively small decisions.
