Examining How Changes in NPV Affect Fluctuations in Fair Stock Value

Mohamad Saad^1, , Saeed Bajalan² and Reza Tehrani²

¹Lebanese International University, School of Business, Department of Finance, Beirut, Lebanon

²University of Tehran, College of Management, Faculty of Accounting and Finance, Tehran, Islamic Republic of Iran

Cite this paper:
Mohamad Saad, Saeed Bajalan and Reza Tehrani. Examining How Changes in NPV Affect Fluctuations in Fair Stock Value. Journal of Finance and Economics. 2025; 13(2):80-87. doi: 10.12691/jfe-13-2-3

Abstract

This study examined how changes in the Net Present Value (NPV) of a company's projects impact fluctuations in its fair stock value. An experiment utilized a simulated stock market with a virtual company (Ahoo Co.) and a group of 20 finance experts (Evaluators) who predicted Ahoo's stock prices to serve as a fair value benchmark. Robust regression analysis revealed a statistically significant positive relationship between changes in Ahoo's project NPVs and changes in the Evaluators' predicted stock values. The NPV coefficient was highly significant, and NPV explained 60% of the variance in predicted stock values. These findings support the hypothesis that a company's fair stock value fluctuations can be significantly explained by fluctuations in the expected NPV from its projects. The study concludes NPV is a crucial determinant of stock valuation, with implications for investment strategies, corporate decision-making, valuation modeling, and market efficiency. Key limitations include the small Evaluator sample size and generalizability issues. Further research with larger samples is recommended to strengthen reliability.

Keywords:
Net Present Value (NPV) Stock Valuation Fair Value Regression Analysis Simulated Stock Market

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