Abstract
ABSTRACT The Net Present Value (NPV) rule of financial theory gives management a decisive criterion for choosing between abandonment versus continuation of capital projects. There is extensive evidence, however, that management chooses to delay the abandonment of unprofitable projects. This paper attempts to explain management's reluctance to abide by the NPV criterion. The concept of a Reputation Adjusted Net Present Value is introduced in an environment where management knows more about the true value of a project than do stakeholders. The model indicates that, in such an environment, the continuation of a negative NPV project may maximize firm value.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
