When a Manager Does Not Accept a Positive-NPV Project, Shareholders

question 118

Multiple Choice

When a manager does not accept a positive-NPV project, shareholders face an opportunity cost in the amount of the:

• A)Project's initial cost.
• B)Project's NPV.
• C)Project's discounted cash flows.
• D)Soft capital rationing budget.

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Definitions:

Pollution Permits

Tradable permits issued by governments that allow the holder to emit a certain amount of pollution; used to control and reduce environmental harm.

Corrective Taxes

Taxes designed to internalize externalities, typically by charging for negative externalities to correct market outcomes.

Internalize

The process of incorporating the cost of externalities into the decision-making processes of relevant parties, often through regulation or market-based incentives.

Corrective Taxes

Taxes designed to correct the market outcomes that are not efficient by themselves, usually by discouraging negative externalities.