A value-maximizing firm would
A)undertake an investment project as long as the IRR exceeds the NPV.
B)undertake an investment project as long as the IRR is less than the cost of capital.
C)undertake an investment project as long as the IRR exceeds the cost of capital.
D)none of the options

Question

Quizplus · Accepted Answer

A value-maximizing firm would undertake an investment project as long as the IRR exceeds the cost of capital. This is because the IRR represents the rate of return that the firm can expect to earn from the investment project, while the cost of capital represents the minimum required rate of return that the firm must earn in order to compensate its investors for the use of their capital. By choosing investment projects with IRRs that exceed the cost of capital, the firm can ensure that the project generates positive net present value (NPV) and thus increase the overall value of the firm.

A Value-Maximizing Firm Would