Capital Projects and Strategic Direction Essay Example | Topics and Well Written Essays - 500 words

Capital Projects and Strategic Direction - Essay fashion model(Bender & Ward, 2002) A typical process to evaluate a project involves assessing its net manifest value by discounting the future cash flows of a faithful with appropriate discount rate and deducting the resulting amount from the total corking outlay spent on the project. If the net present value of the project is positive it adds value to the devoted and if it is negative, it could not add value to the firm. The value addition proposition of the capital projects is therefore their net present value. If the net present value is positive, it adds value to the firm and the shareholders. Positive NPV of the project therefore is considered as the find criteria for adding value to the firm. If NPV of the capital project is negative, it is assumed that it will not add value to the firm and so could not maximize the value of the firm or the value for the shareholders. Major capital projects with positive NPV jock the orga nizations stock prices to ontogeny by such projects give a signal to the investors that the firm is adding more capacity to it and expanding its markets. Expansion through new capital projects therefore also allow the firms to increase the future cash flow generation of the firm and hence increase their share prices also.