A financial manager who does not follow the general constraints of the NPV rule may:
A) accept a negative 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) Option the project to another firm.
D) Not take a positive NPV project even if the NPV is adequate reward to forego the option.

Question

Quizplus · Accepted Answer

Accepting a marginally acceptable NPV project limits the corporation's ability to choose a competing project, which can lead to missed opportunities for better returns. It is important for financial managers to follow the general constraints of the NPV rule to ensure that the firm is making the best investment decisions for its long-term profitability. Accepting negative projects or not taking positive NPV projects can also be detrimental to the firm's financial health. Optioning the project to another firm may be an option, but it is not always feasible and it may not provide the best return for the firm. Therefore, the best choice is to follow the general constraints of the NPV rule and only accept projects that have an adequate positive NPV.

A Financial Manager Who Does Not Follow the General Constraints