Under what condition would you not accept a project that has a positive net present value?
A) If the project has a profitability index less than zero.
B) If two or more projects are mutually inclusive.
C) If the firm is limited in the capital it has available (capital rationing).
D) If a project has more than one sign reversal.

Question

Quizplus · Accepted Answer

If the firm is limited in the capital it has available (capital rationing), it may not accept a project with a positive net present value if it does not have enough capital to finance the project. In such a situation, the firm may have to prioritize projects based on their profitability index or other criteria and select the projects that can be financed within the capital available. Therefore, option C is the correct answer. Option A is incorrect because profitability index is not relevant to accepting a project with a positive net present value. Option B is incorrect because mutually inclusive projects can be accepted together as they complement each other. Option D is incorrect because sign reversal itself is not a reason to reject a project.

Under What Condition Would You Not Accept a Project That