Chapter 8 Capital Expenditure Decisions

Sometimes capital investments with a positive net present value have a negative impact on earnings.For example, investing in certain types ofresearch and development may result in a large expense at time of investment with the benefits coming a few years (or more) later.Suppose an executive tells you,"I will not approve any capital investment that decreasescurrent earnings,no matter how high the net present value.If our earnings go down, our stockholders arehurt because stock prices will fall, and our managers will be hurt because their bonuses aretied to earnings."What is wrong with the executive's statement?