If a capital budgeting project is purchased, a firm's value, and thus its stockholders' wealth, will increase by the amount of the project's _____.

Question

Quizplus · Accepted Answer

The net present value (NPV) represents the present value of all future cash inflows minus the initial investment, discounted at the required rate of return. Therefore, if the NPV is positive, it means that the project will increase the firm's value and thus its stockholders' wealth. The other options either do not take into account the time value of money (non-discounted cash inflows) or use a different discount rate than the required rate of return (internal rate of return).

If a Capital Budgeting Project Is Purchased, a Firm's Value