In order to maximise firm value,management should invest in new assets when cash flows from the assets are discounted at the firm's ________ and result in a positive NPV.

Question

Quizplus · Accepted Answer

The cost of capital represents the minimum rate of return that a firm requires in order to undertake an investment. Therefore, investing in new assets with cash flows that are discounted at the firm's cost of capital and result in a positive NPV will maximize firm value. The cost of debt and rate of return on equity are important considerations for financing the investment, but the primary focus should be on the investment's ability to generate positive cash flows and increase firm value. The internal rate of return is another useful metric for evaluating investment opportunities, but it does not take into account the cost of capital and may not reflect the true value of the investment.

In Order to Maximise Firm Value,management Should Invest in New