A CFO may end up undertaking negative NPV projects if he has
A)overestimated the expropriation concerns of the firm's creditors when estimating his firm's WACC.
B)ignored the inside information concerns of investors.
C)underestimated transaction costs when calculating his firm's WACC.
D)both B and C.

Question

Quizplus · Accepted Answer

If a CFO ignores the inside information concerns of investors and underestimates transaction costs, he may end up undertaking negative NPV projects. This is because the lack of transparency and high transaction costs may deter investors from investing in the project, leading to low demand and ultimately a negative NPV.

A CFO May End Up Undertaking Negative NPV Projects If