Shareholders of corporations generally do not vote on every investment decision but depend on managers to maximize value by:
A) choosing the highest net income projects.
B) investing at the market rate of return.
C) buying shares back from investors.
D) following the NPV rule to choose investments.

Question

Quizplus · Accepted Answer

Shareholders rely on managers to make investment decisions that will maximize shareholder value, which is best achieved by following the Net Present Value (NPV) rule. The NPV rule involves selecting projects with a positive NPV, indicating that the project is expected to generate more value than its cost, thereby increasing the firm's value.

Shareholders of Corporations Generally Do Not Vote on Every Investment