Investment apprial.

There may be different objectives within firms, and we assume that increasing the value of the stock (or maximising share price and maximising shareholders' wealth) is the main objective of financial management. The most important approach we use to evaluate the optional investment is called the NPV (Net Present Value) rule. Normally we choose to estimate the present value of future cash flows we expect from the new project. Here we will use the basic …

…estimate NPV unless we know the appropriate discount rate, but as long as we have the future cash flows, we can estimate IRR. To conclude, the NPV approach is always considered to be the most appropriate method in evaluating the potential investments, although other approaches may have several advantages. In reality, all of the approaches, including NPV, IRR, the payback rule, etc are commonly used by firms, for every approach has its own special features.