Now that you have finished finance, you know there are things that we know matter and things that we think matter and things that we know very little about. Adopting NPV>0 projects is in the set of things that we know matter.
Required:
(a) Give a careful explanation as to why adopting NPV>0 projects is consistent with the goal of the firm.
(b) We recognize that in competitive markets, most projects will have a NPV=0.
(1) Give an explanation to an ECON104 (basic microeconomics) student about why a firm would take on such projects and what they have to gain or lose.
(2) Under what circumstances do we see NPV>0 projects?