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7

Net Present Value

A firm has a Net Present Value of zero, should the project be rejected?

A firm has a Net Present Value of zero, should the project be rejected?

(edited)

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Hi there,

We do need a some more context, but let me help clarify:

If the objective of the client is only to earn a profit, and there are better alternatives for spending the money, then the project should be rejected if NPV <0

If the client has other objectives (market share, competitive response, growth, disversification, etc.), then the answer becomes more complicated.

In general though, an NPV of 0 is "neutral". It's rare that you'll have a 0 NPV in a case, but it basically means that it technically meets our investment criteria.

Hi there,

We do need a some more context, but let me help clarify:

If the objective of the client is only to earn a profit, and there are better alternatives for spending the money, then the project should be rejected if NPV <0

If the client has other objectives (market share, competitive response, growth, disversification, etc.), then the answer becomes more complicated.

In general though, an NPV of 0 is "neutral". It's rare that you'll have a 0 NPV in a case, but it basically means that it technically meets our investment criteria.

(edited)

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First of all, it's probably a project that has a NPV of 0, not a firm.

After that, you can develop a framework to think about this - this is a bit rudimentary, but you can expand it with more background of the case:

  • Financial reasons
    • Can they chose to do nothing or do they need to do this project or another one (so is in-action an option?)
    • If no, then what is the NPV for the alternative?
  • Non fincancial reasons
    • Do they have any reasons to do the project even if it is NPV neutral (e.g. legal requirement)?

First of all, it's probably a project that has a NPV of 0, not a firm.

After that, you can develop a framework to think about this - this is a bit rudimentary, but you can expand it with more background of the case:

  • Financial reasons
    • Can they chose to do nothing or do they need to do this project or another one (so is in-action an option?)
    • If no, then what is the NPV for the alternative?
  • Non fincancial reasons
    • Do they have any reasons to do the project even if it is NPV neutral (e.g. legal requirement)?
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Hello,

I think it's hard to give you an answer without knowing more details and the context. Some questions to be answered would be:

  • How many years did you consider for NPV calculation?
  • Is it a startup or a mature firm?
  • How is the trend and size of the revenues?
  • What is the target of our client?

Feel free to text me if you want to discuss the problem in details.

Best,
Luca

Hello,

I think it's hard to give you an answer without knowing more details and the context. Some questions to be answered would be:

  • How many years did you consider for NPV calculation?
  • Is it a startup or a mature firm?
  • How is the trend and size of the revenues?
  • What is the target of our client?

Feel free to text me if you want to discuss the problem in details.

Best,
Luca

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Hello!

It depends totally on the client´s targets, which is the 1st thing that should be ALWAYS clarified

Cheers,

Clara

Hello!

It depends totally on the client´s targets, which is the 1st thing that should be ALWAYS clarified

Cheers,

Clara

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You need to provide a lot more details for this question to be answerable

You need to provide a lot more details for this question to be answerable

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Could you please provide some more context? GB

Could you please provide some more context? GB

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