Net Present Value Rule

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Definition of 'Net Present Value Rule'

A rule stating that an investment should be accepted if its net present value is greater than zero and rejected otherwise. According to the theory of net present value (NPV), participating in a positive NPV project will increase firm or shareholder wealth.

Investopedia Says

Investopedia explains 'Net Present Value Rule'

While most firms follow the net present value rule, there are some situations where the theory is abandoned. If the company is pressured by large debt payments, some positive NPV projects will be rejected. In this case, the initial capital will go towards servicing the debt instead of investing in new projects.

If a firm has poor corporate governance, managers may ignore the net present value rule. In order to appear active, management may take on negative NPV projects to give shareholders the illusion of ongoing corporate investment.

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'Net Present Value Rule'

  • CFA Level 1 Study Guide - Quantitative Methods - Net Present Value ...

    http://www.investopedia.com/exam-guide/cfa-level-1/quantitative-methods/discounted-cash-flow-npv-irr.asp
    ... 2.6 Net Present Value and the Internal Rate of Return; 2.7 Money Vs. ... Analysis: 5.1
    Introduction; 5.2 Production Possibility Curves; 5.3 Trade Efficiency Rule; ...

  • CFA Level 1 Study Guide - Corporate Finance - Net Present Value ...

    http://www.investopedia.com/exam-guide/cfa-level-1/corporate-finance/npv-net-present-value-irr-internal-rate-of-return.asp
    ... 2.6 Net Present Value and the Internal Rate of Return; 2.7 Money Vs. ... Analysis: 5.1
    Introduction; 5.2 Production Possibility Curves; 5.3 Trade Efficiency Rule; ...

  • Avoid Tricky Tax Issues On Municipal Bonds

    http://www.investopedia.com/articles/06/munibond.asp
    ... mean falling into the de minimis rule and being ... Par Value, -, (Amount Allowable *
    Years to Maturity), =, De ... Since the net present value for this bond is well below ...

  • CFA Level 1 Study Guide - Global Economic Analysis - Trade ...

    http://www.investopedia.com/exam-guide/cfa-level-1/global-economic-analysis/trade-efficiency.asp
    ... 2.6 Net Present Value and the Internal Rate of Return; 2.7 Money Vs. ... Analysis: 5.1
    Introduction; 5.2 Production Possibility Curves; 5.3 Trade Efficiency Rule; ...

  • CFA Level 1 Study Guide - Corporate Finance - Applying NPV ...

    http://www.investopedia.com/exam-guide/cfa-level-1/corporate-finance/applying-npv-net-present-value-project-decisions.asp
    ... 2.6 Net Present Value and the Internal Rate of Return; 2.7 Money Vs. ... Analysis: 5.1
    Introduction; 5.2 Production Possibility Curves; 5.3 Trade Efficiency Rule; ...

  • Series 7 Study Guide - Getting Started - The Time Value Of Money ...

    http://www.investopedia.com/exam-guide/series-7/getting-started/time-value-of-money.asp
    ... 6.6 Net Asset Value (NAV); 6.7 Dollar Cost Averaging; ... Short Position; 10.17 Plus
    Tick Rule; 10.18 Costs ... Present Value is the mathematical concept that compares the ...

  • CFA Level 1 Study Guide - Corporate Finance - The NPV Profile ...

    http://www.investopedia.com/exam-guide/cfa-level-1/corporate-finance/npv-net-present-value-profile.asp
    ... 2.6 Net Present Value and the Internal Rate of Return; 2.7 Money Vs. ... Analysis: 5.1
    Introduction; 5.2 Production Possibility Curves; 5.3 Trade Efficiency Rule; ...

  • CFA Level 1 Study Guide - Corporate Finance - Advantages and ...

    http://www.investopedia.com/exam-guide/cfa-level-1/corporate-finance/advantages-disadvantages-npv-net-present-value-irr-internal-rate-of-return.asp
    ... 2.6 Net Present Value and the Internal Rate of Return; 2.7 Money Vs. ... Analysis: 5.1
    Introduction; 5.2 Production Possibility Curves; 5.3 Trade Efficiency Rule; ...

  • CFA Level 1 Study Guide - Alternative Investments - Venture ...

    http://www.investopedia.com/exam-guide/cfa-level-1/alternative-investments/venture-capital-investment-characteristics-npv-net-present-value.asp
    ... 2.6 Net Present Value and the Internal Rate of Return; 2.7 Money Vs. ... Analysis: 5.1
    Introduction; 5.2 Production Possibility Curves; 5.3 Trade Efficiency Rule; ...

  • CFA Level 1 Study Guide - Corporate Finance - Cash Flow and NPV ...

    http://www.investopedia.com/exam-guide/cfa-level-1/corporate-finance/cash-flow-npv-net-present-value-applications.asp
    ... 2.6 Net Present Value and the Internal Rate of Return; 2.7 Money Vs. ... Analysis: 5.1
    Introduction; 5.2 Production Possibility Curves; 5.3 Trade Efficiency Rule; ...

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