In applying risk-adjusted discount rates to project selection, projects falling above the SML would have a negative NPV and those falling below the SML would have a positive NPV.

Question

Quizplus · Accepted Answer

The statement is incorrect. Projects falling above the SML would have a positive NPV, while those falling below the SML would have a negative NPV. The SML represents the required rate of return for a project based on its level of risk, and any project with a NPV above this required rate of return would be considered a good investment.

In Applying Risk-Adjusted Discount Rates to Project Selection, Projects Falling