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"Acting on behalf of its stockholders, a firm with a lot of risky debt in its...

"Acting on behalf of its stockholders, a firm with a lot of risky debt in its capital structure may refuse to take certain positive NPV projects that makes the firm safer."

True or False?

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Answer #1

The correct answer is False

The Net present value refers to the present value of all the cash flows that the project is going to generate over the years subtracted by initial investment of the project, if the project has posiitve Net present value, then it means that project will generate cash flows to the company, which will help the company to use this for various purposes like paying interest to the debtholders etc., Therefore, it is unlikely that they will refuse it.

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