LT NPV reducing ST ROE...

“Managers may avoid long term positive NPV projects that have the short run effect of reducing EPS or ROE” How?

Stock prices can be tied to bonuses and you see plenty of headlines about stocks prices soaring after hearing about rises in EPS. An announcement that a company is going to invest in a positive NPV project doesn’t get prices moving like earnings announcements.

Initial outlay for a project expected to return good numbers in future periods

thanks, makes sense

edmund_lord Wrote: ------------------------------------------------------- > Stock prices can be tied to bonuses and you see > plenty of headlines about stocks prices soaring > after hearing about rises in EPS. An announcement > that a company is going to invest in a positive > NPV project doesn’t get prices moving like > earnings announcements. I disagree. I think stock prices often move upwards after announcing projects that will, in the short-term, lead to declines in current EPS but higher future EPS. For example plant closures, which in the current period lead to charges classified as one-time or restructuring and therefore have no impact on current adjusted EPS and serve to enhance future earnings. An analyst is always wise to fully diligence these ‘restructuring’ charges as many companies tend to bury whatever they can in these figures knowing they will receive add-back treatment for the charges.