Corporate managers can maximize shareholder wealth by choosing positive NPV projects because:
A) all investors have the same preferences.
B) the unhappy shareholders can sell off shares.
C) the separation theorem in financial markets states that all investors will be satisfied with the same investment decision regardless of personal preferences.
D) managers are wiser than shareholders regarding investments.

Question

Quizplus · Accepted Answer

The separation theorem suggests that in efficient markets, all investors will agree on the same investment decision, such as choosing projects with a positive Net Present Value (NPV), as it maximizes shareholder wealth regardless of individual preferences.

Corporate Managers Can Maximize Shareholder Wealth by Choosing Positive NPV