The problem of being forced to choose between foregoing a positive NPV project and seeing the share price fall because of a share issue can be overcome by maintaining:

Question

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By maintaining reserve borrowing capacity, the company can fund the positive NPV project without issuing new shares and thus avoid the risk of a share price fall. This provides the flexibility to pursue profitable investment opportunities without adversely affecting the share price. Stable dividends, target leverage levels, and debt-equity ratio are important financial policies, but they may not directly address the problem of choosing between a positive NPV project and share issuing.

The Problem of Being Forced to Choose Between Foregoing a Positive