This is “The Bigger Picture”, section 13.8 from the book Finance for Managers (v. 0.1).
This book is licensed under a Creative Commons by-nc-sa 3.0 license. See the license for more details, but that basically means you can share this book as long as you credit the author (but see below), don't make money from it, and do make it available to everyone else under the same terms.
This content was accessible as of December 29, 2012, and it was downloaded then by Andy Schmitz in an effort to preserve the availability of this book.
Normally, the author and publisher would be credited here. However, the publisher has asked for the customary Creative Commons attribution to the original publisher, authors, title, and book URI to be removed. Additionally, per the publisher's request, their name has been removed in some passages. More information is available on this project's attribution page.
For more information on the source of this book, or why it is available for free, please see the project's home page. You can browse or download additional books there. You may also download a PDF copy of this book (2 MB) or just this chapter (173 KB), suitable for printing or most e-readers, or a .zip file containing this book's HTML files (for use in a web browser offline).
PLEASE NOTE: This book is currently in draft form; material is not final.
In many ways, this chapter is the culmination of all that has come before in the text. All of our discussion has given us the tools to evaluate projects and be informed about the financial value of projects that we might undertake. Managers can use these criteria to approve positive value projects, which should increase the value of the company. In future chapters, we examine what make up the cash flows that we are analyzing, and how we might influence the inputs of a project.
Every successful business argument for going forward with a project should be rooted in the information presented in this chapter. While there might be considerations beyond the finances, without a financial valuation it is impossible for a manager to grasp the implication on stakeholders’ value.
It is tempting to proclaim “NPV positive means accept the project” without thinking of the ramifications of such a decision. Purchasing a new machine might mean that jobs will be lost or pollution reduced. It is impossible to accurately put a financial value on a life lost, and yet every day we must make decisions that account for a trade-off among these types of factors.
Just as it is important not to make a decision without understanding the financial impact, it would be folly to limit ourselves to only this perspective.