Fundamentals of Corporate Finance, Student Value Edition (4th Edition)
Fundamentals of Corporate Finance, Student Value Edition (4th Edition)
4th Edition
ISBN: 9780134476117
Author: Berk, Jonathan; DeMarzo, Peter; Harford, Jarrad
Publisher: PEARSON
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Chapter 8, Problem 1CC
Summary Introduction

Net Present Value: Fundamentals of Corporate Finance, Student Value Edition (4th Edition), Chapter 8, Problem 1CC , additional homework tip  1 Net present value refers the variance between a present value of cash flows and the present value of cash outflows.

To Explain: The Fundamentals of Corporate Finance, Student Value Edition (4th Edition), Chapter 8, Problem 1CC , additional homework tip  2 decision rule and the relation of this rule with the valuation.

Expert Solution & Answer
Check Mark

Answer to Problem 1CC

NPV decision rule: Fundamentals of Corporate Finance, Student Value Edition (4th Edition), Chapter 8, Problem 1CC , additional homework tip  3 decision rule signifies the decision related to investment in the project.

The value of Fundamentals of Corporate Finance, Student Value Edition (4th Edition), Chapter 8, Problem 1CC , additional homework tip  4 is greater than 0 then the project should be considered for the acceptance, otherwise, the project is rejected.

  • Fundamentals of Corporate Finance, Student Value Edition (4th Edition), Chapter 8, Problem 1CC , additional homework tip  5 refers the value of all cash outflows and inflows at present that helps to take the decision to accept or reject a particular project.
  • Fundamentals of Corporate Finance, Student Value Edition (4th Edition), Chapter 8, Problem 1CC , additional homework tip  6 The decision rule is related to the valuation principle as Fundamentals of Corporate Finance, Student Value Edition (4th Edition), Chapter 8, Problem 1CC , additional homework tip  7 helps to analyze the value of cash at present and the wealth of the project.
  • It determines whether the project will increase the wealth or not.
  • From the Fundamentals of Corporate Finance, Student Value Edition (4th Edition), Chapter 8, Problem 1CC , additional homework tip  8 decision rule, the investor got to know whether the investment should be made or not.

Explanation of Solution

  • The Fundamentals of Corporate Finance, Student Value Edition (4th Edition), Chapter 8, Problem 1CC , additional homework tip  9 of any project can be positive or negative.
  • If the Fundamentals of Corporate Finance, Student Value Edition (4th Edition), Chapter 8, Problem 1CC , additional homework tip  10 value is positive than the investor should invest in that particular project.
  • If the Fundamentals of Corporate Finance, Student Value Edition (4th Edition), Chapter 8, Problem 1CC , additional homework tip  11 value is negative than the investor should not invest in that particular project.
  • Fundamentals of Corporate Finance, Student Value Edition (4th Edition), Chapter 8, Problem 1CC , additional homework tip  12 decision rule helps to identify the higher Fundamentals of Corporate Finance, Student Value Edition (4th Edition), Chapter 8, Problem 1CC , additional homework tip  13 if the investor needs to choose the better option among the various,
Conclusion

Fundamentals of Corporate Finance, Student Value Edition (4th Edition), Chapter 8, Problem 1CC , additional homework tip  14 decision rule helps to choose the better options of investments. Hence, the Fundamentals of Corporate Finance, Student Value Edition (4th Edition), Chapter 8, Problem 1CC , additional homework tip  15 decision rule is related to the valuation principle.

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