Impact of Project Investments on Firm Value Essay

broadly speaking in all decisions concerning investments in capital protrudes, the counselling selects only those assures that be expected to contribute a positive net present value. set ahead the project should be capable of providing an internal rate of re pass on which should be greater than the hurdle rate. (Ross et al 2005) These criteria for the selection of capital projects be considered of import from the perspective of the evaluation of the capital projects.However the phenomenon of value maximization of the devoted is not being focused by these evaluation methods. It may be noted that a project go out be considered financially workable only when it satisfies the condition of meeting the evaluation criteria and should also be in a position to provide super-normal returns on the investments to add value to the occupation proposing the investment. Several avenues can be cited which could be used by the project to result in super normal profits to the blotto which r esults in the enhancement in the value of the firm.To cite a few avenues by ensuring better economies of scale, by providing other cost advantages, by enabling the firm to offer better quality products that are distinct in the market, by improving production efficiency, by providing better access to distribution communicate and by ensuring increased brand recognition the late project investments would be able to add value to the firm.Project Investment and Stock evaluationThe potential for growth and improvement in sales of the bon ton will significantly be dazeed by the proposed expansion of the comp some(prenominal) into new markets and new product lines and this will improve the position of the company in terms of profitability and return on equity. As a born(p) consequence the expansion by achieving the projected financial expectations will impact the value of the companys stock. The market value of the stock is potential to go up once the expansion pays off the results by elan of increased profits.Further the internal valuation of the shares will also catch increased or decreased depending on the financial decision for sourcing the spare funds required for investing in the capital projects. Based on the changes in the leverage the book value of the shares will be affected. When the company decides to finance the expansion through issue of new common stocks the equity will get diluted to the extent of the stocks issued for public subscription.This in turn will have its impact on the free cash race to the equity, since there will be increase in the number of shares and indeed the valuation of shares will get impacted. (Discussion Issues and Derivations) Strategic Considerations Normally the execution of any project investment decisions can be influenced by the governmental regulations on which the management does not have any control. But there are certain other factors, the course of which can be altered by taking some strategic decisions by t he management.By selecting those projects which offer the surmount return on investment through better economies of scale the management can strategically increase the returns and value of the firm. The other alternative is to cypher for avenues that will enable the company to enlarge the economies of scale on the breathing operations of the firm Improving the quality of customer service and timely deliveries to the customers has been found to be proven strategies for improving the reputation of the firm and thereby improving the value of the firm.Establishment of unique and efficient distribution convey much above the ability of the competitors to achieve can be looked at as another strategic move. In making any project successful an important factor is the quality of the management and the ability to take strategic and tactful decisions. It is essential that the quality of management must be related to the quality of projects the firm is contemplating to invest in.