A financial manager who does not follow the general constraints of the NPV rule may:
A)accept a negative NPV project for fear of losing an investment opportunity.
B)accept a marginally acceptable NPV project limiting the corporation's ability to choose a competing project.
C)not consider all options available in a capital budgeting decision.
D)not take a positive NPV project even if the NPV is adequate reward to forego the option.
E)All of the above.

Question

Quizplus · Accepted Answer

All of the above options are possible outcomes of a financial manager who does not follow the general constraints of the NPV rule. Accepting a negative NPV project for fear of missing an investment opportunity, accepting a marginally acceptable NPV project limiting flexibility in choosing alternative projects, and not considering all options available are all violations of the NPV rule. On the other hand, not taking a positive NPV project even if the reward is sufficient may reduce profitability and hinder the organization's growth.

A Financial Manager Who Does Not Follow the General Constraints