Investment Decision Rule

There are certain rules which need to be followed while making financial decisions. Any final decision should abide by the following rules:

  • The wealth of the shareholders should be maximized.

  • In order to assess the project's actual profitability, it should take into account all cash flows.

  • It ought to offer a clear-cut, unbiased method of differentiating between successful and unsuccessful projects.

  • It should assist in project ranking based on real profitability.

  • It should be aware that larger cash flows are preferred over smaller ones and that earlier cash flows are preferred over later ones.

  •  It should be easier to select the project that maximizes the value of the owners from a group of initiatives that are mutually exclusive.

  •  It should be a standard that is independent of others and applicable to any imaginable investment project.

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