Abstract
Evaluating a business‐unit strategy from the perspective of creating shareholder value involves discounting the future cash flows that the strategy is expected to generate by the minimum rate of return required by investors. The resulting net present value (NPV) can then be compared with those for alternative strategies to determine which is expected to create the most value for shareholders. Strategies with negative NPVs are those that fail to provide investors with sufficient returns to compensate them for their investment risk.
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