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 discounted cash flow procedure to estimate the present value to those future cash flows, which is called discounted cash flow valuation. …
