413.5
5.What does the NPV calculation tell us? Why do we use it? (6)
The NPV tells us whether the PV of the benefits outweigh the PV of the costs of undertaking a particular investment. In doing, so it gives us the dollar value of an investment's net effect on the value of the company. Since we want to maximize the value of the company (which maximizes the shareholders' wealth), we want to take projects that increase the value of the company. NPV tells us which ones do that.