Question

Financial managers should only accept investment projects that: earn a higher rate of return than shareholders...

Financial managers should only accept investment projects that:

earn a higher rate of return than shareholders can get by investing on their own.
can increase the firm's market share.
increase the current profits of the firm.
earn a higher rate of return than the firm currently earns on its existing projects.
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Answer #1

Correct option is > earn a higher rate of return than shareholders can get by investing on their own

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The project which earns higher return than shareholder's return will only create wealth for the firm. The objective of financial manager is to maximize the wealth of the firm hence the correct option is first option.

Why other options are not suitable choice:

Increasing market share is not core objective of financial manager

Increasing current profit may not always lead to wealth or actual value creation for the firm. Profits sometimes may not increase real cash flow of the firm (profit contains non-cash items also)

Financial manager accepts those project which is higher than shareholders return, it is not necessary that given project must earn higher return than existing ones.

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