Question
The CEO and CFO of a company are debating investing in a project that will require an upfront investment of $100 million. The company's analysts
The CEO and CFO of a company are debating investing in a project that will require an upfront investment of $100 million. The company's analysts have estimated the NPV of the project to be $1 million. The CFO argues that the company should undertake the project since it is positive NPV. The CEO pushes back, arguing that the $1 million NPV is small relative to the required investment of $100 million, so the project does not generate enough of a return to compensate the company's investors for the opportunity cost of the $100 million of capital. The company can access as much capital as it needs, and the project is not mutually exclusive with any other project. Who is correct, the CEO or CFO, and why?
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