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A company is having some profitable investment projects with positive NPV to invest in.

A company is having some profitable investment projects with positive NPV to invest in. In your opinion what is better option to increase firm's market value : a. To pay dividends to shareholders as per normal company practice. b. To retain profits and invest them in profitable projects to create more value for the shareholders. c. A combination of the two to create value.

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Question added by Deleted user
Date Posted: 2014/09/03
Sheikha Maryam Desiree  Aleman
by Sheikha Maryam Desiree Aleman , General Manager , Disha Material Building/K.I

While most firms follow the net present value rule, there are some situations where the theory is abandoned. If the company is pressured by large debt payments, some positive NPV projects will be rejected. In this case, the initial capital will go towards servicing the debt instead of investing in new projects.

If a firm has poor corporate governance, managers may ignore the net present value rule. In order to appear active, management may take on negative NPV projects to give shareholders the illusion of ongoing corporate investment. 

aziz urrehman
by aziz urrehman , key account executive , alkhair group of companies foam manufacturing

It depent on oppertunities available to the company that if share holders are interesting in divident more as compare to oppertunity available then divident should be declare and vise versa

Prince Ninan
by Prince Ninan , Audit Executive , Lewis & Pecker

If the return from new investment is more than the company's present cost of capital then retaining profit will increase firm's market value. Otherwise it is better to pay dividend.

Saifullah Shirazi
by Saifullah Shirazi , Senior Accountant , Suraj Cotton Mills Limited

If return from new investment is greater than cost of capital then retaining profit and investing in profitable project will increase the market value of firm but management should also consider the interest of share holders

georgei assi
by georgei assi , مدير حسابات , المجموعة السورية

c. A combination of the two to create value

Shahbaz Muhammad
by Shahbaz Muhammad , Sr. electrical inspector , Bureau Veritas

I have no answer for this question.

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