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2 - NPV and the Investment Decision of the Firm

Published online by Cambridge University Press:  09 February 2017

Raghavendra Rau
Affiliation:
Judge Business School, Cambridge
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Summary

These stakeholders represent everyone who has a stake in the success of the firm. Obvious examples are the workers, the managers, the shareholders, the customers, the suppliers, the bondholders, regulators, auditors, and so on. Some examples are not quite so obvious. For example, competitors also have a (negative) stake in the firm. A firm succeeding means that its competitors might be worse off. Competitors have incentives to complain that their rivals are pricing their products too low, bundling different services into a package to hide underlying costs, or engaging in any other activity that leaves the competitors worse off. The government also has a stake in the firm – if the firm fails, its employees will be out of jobs with the corresponding unemployment benefits being picked up by the taxpayers. If the firm is too successful, the government worries that these profits are at the expense of other competitors or workers.

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Publisher: Cambridge University Press
Print publication year: 2016

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