... having invested in a project' (Brealey et al, p181). This expected rate of return is basically what could be earned by investing in a government bond or such like - which is a guaranteed return. After calculating the Net Present Value a number is obtained which can be negative or positive. 'The net present value rule states that managers increase shareholders' wealth by accepting all projects that are worth more than they cost. Therefore, they should accept all projects with a positive net value' (Brealey et al, p181). With a positive NPV than the project will be 'worth more than it costs - so it makes a net contribution to value' (Brealey et al, p181). The Net Present Value rule is used to maximise shareholder wealth - a main aim of firms internationally. It applies as a rule only under Irving Fishers separation theorem of a perfect capital market (PCM). ...

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