Loan covenants can ensure that companies will accept all positive-NPV investments and reject negative ones.

Question

Quizplus · Accepted Answer

Loan covenants do not necessarily ensure that companies will accept all positive-NPV investments and reject negative ones. Loan covenants may restrict the types of investments a company can make or may require certain financial ratios to be maintained, which could affect investment decisions. Ultimately, the investment decision rests with the company's management and board of directors.

Loan Covenants Can Ensure That Companies Will Accept All Positive-NPV