Net Present Value Rule
While most firms follow the net present value rule, there are some situations where the theory is abandoned. If the company is pressured by large debt payments, some positive NPV projects will be rejected. In this case, the initial capital will go towards servicing the debt instead of investing in new projects.
If a firm has poor corporate governance, managers may ignore the net present value rule. In order to appear active, management may take on negative NPV projects to give shareholders the illusion of ongoing corporate investment.
Investment dictionary. Academic. 2012.
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