Economics · Capital Budgeting
A company applies the Net Present Value (NPV) method for all investment appraisals. Assuming the company has no capital rationing constraints, which of the following statements is the most accurate implication of using the NPV method?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
Share:
- 1The acceptance of a project with a positive NPV is always guaranteed to maximise the company's Return on Investment (ROI).
- 2The NPV method ensures that the acceptance of a project with a positive value will lead to an increase in the wealth of the company's shareholders.✓
- 3A negative NPV suggests that the project's Internal Rate of Return (IRR) must be less than the risk-free rate of return.
- 4The NPV rule only maximises shareholder wealth if the initial investment cost is funded entirely by equity, as it uses the cost of equity as the discount rate.
Correct answer
The NPV method ensures that the acceptance of a project with a positive value will lead to an increase in the wealth of the company's shareholders.
Download Single Question PDF
Save this question and verified answer as a clean study sheet with live clickable link.
👥
Share with Friends & Study Groups
Challenge your peer aspirants on WhatsApp or Telegram to solve this question!
Online Test Series
Preparing for Economics?
Practice full-length Economics mock tests with real exam timers, instant score analysis, and all-India ranking.
Chapter Practice
Practice Capital Budgeting MCQs →Want more practice questions on Capital Budgeting?
Solve complete topic-wise tests with detailed solutions on GkGet.
Related Practice Questions
Recommended practice questions in Economics · Capital Budgeting