How Consumer Price Index and Net Present Value Affect Management Decisions: A Case Study

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The project has a positive net present value of $46.59 million. As such, the project should be accepted. The reasoning behind this is that the company should accept any project if the NPV is above 0. The NPV reflects value added to the company. Management, therefore, should pursue any project that adds value to the company and that means pursuing projects with a positive NPV. A positive NPV will increase shareholder wealth, and a negative NPV will reduce shareholder wealth (Baker, 2000). The dollar value of the NPV in light of the expenditure is irrelevant. The project adds to shareholder wealth, and should therefore be accepted. The only time when the dollar values of the expenditure and the NPV matter is when the company must choose between two mutually exclusive alternatives (FAO, n.d.). In that case, the obligation that management has is to undertake the project that delivers the greatest increase in shareholder wealth. The CEO must have made several assumptions. The first is that the company can successfully enter so many markets simultaneously. From an operations perspective, this is a very difficult expansion plan. A plan this ambitious is not usually undertaken a firm that has never expanded this way. There must be a few implicit assumptions here. The company is clearly assuming that all of these markets are going to remains stable. While political and economic stability are reasonable assumptions for Germany, they are less so for Brazil. Even entering the

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