The process of making these decisions is called capital budgeting. Accordingly, managers must make careful choices about when and where to invest capital to ensure that it is used wisely to create value for the firm. The funds available to be invested in a business either as equity or debt, also known as capital, are a limited resource. Using an ambitious, but unrealistic, IPO target as a residual value could be the game changer between a positive and negative NPV.
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