Why might companies disregard a positive NPV? MIT professor of financial economics Stewart C. Myers...

Question

Why might companies disregard a positive NPV? MIT professor of financial economics Stewart C. Myers asserts that different decision rules might apply when investments are long-term rather than short-term (Myers, XXXXXXXXXXFinancial managers may rationalize that it is in their immediate interest to invest in short-term projects because they bring the most shareholder benefits; this is, in other words, the so-called agency problem. However, what could be the long-term consequences of that strategy?

Identify and describe a long-term investment project (either real or fictional) that would likely require significant capital commitment. If you were acting as a financial analyst, what factors would you consider in the decision to move forward or abandon the project? In your initial response, discuss such factors as:

NPV

IRR

EBIT

WACC

Corporate structure

Market structure

Corporate goals and mission

Regardless of these factors, why might this project still be a worthy investment? Are there certain industries that might demand a more long-term strategy? Which ones? I

Reference Myers, S. C XXXXXXXXXXDeterminants of corporate borrowing. Journal of Financial Economics, 5(2), 147–175. To complete this assignment, review the Discussion Rubric document.

qfile_636821357642297043_123895_1.pdf

Soumi · Accepted Answer

Running Head: CORPORATE FINANCE		1
CORPORATE FINANCE		2
FINANCE 630: CAPITAL BUDGETING & FINANCING
Net Present Value (NPV) is the difference between the present value of inflows and present value of outflows. Companies tend to invest in positive NPV projects. However, due to significant debt issues, the company may not accept a positive NPV project. At that point, the focus is more on redirection of capital to manage excess debt. According to Ang (2018), poor corporate governance may also be a reason for rejecting positive NPV projects. 
If Walmart wishes to set up a store in an area,

Why might companies disregard a positive NPV? MIT professor of financial economics Stewart C. Myers asserts that different decision rules might apply when investments are long-term rather than...

Solution

Answer To This Question Is Available To Download

Related Questions & Answers

Submit New Assignment