When a manager does not accept a positive-NPV project, shareholders face an opportunity cost in the amount of the:
A)Project's initial cost.
B)Project's NPV.
C)Project's discounted cash flows.
D)Soft capital rationing budget.

Question

Quizplus · Accepted Answer

The NPV represents the present value of the project's expected cash inflows minus the initial cost. If a positive-NPV project is rejected, it means that the company is giving up potential profits and shareholder wealth. Therefore, shareholders face an opportunity cost equal to the project's NPV.

When a Manager Does Not Accept a Positive-NPV Project, Shareholders