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Financing decisions differ from investment decisions for which of the following reasons? I) You cannot use NPV to evaluate financing decisions; II) Markets for financial assets are more active than for real assets; III) It is easier to find financing decisions with positive NPV than to find investment decisions with positive NPV
Financing decisions differ from investment decisions for which of the following reasons?
I) You cannot use NPV to evaluate financing decisions;
II) Markets for financial assets are more active than for real assets;
III) It is easier to find financing decisions with positive NPV than to find investment decisions with positive NPV.
A. I only
B. II only
C. III only
D. I and III only
Expert Solution
The answer is B.
I) NPV menthol can be implemented to analyze both financial and investment decisions.
II) It is true that financial assets would be actively traded in the market, compared to real assets such as equipments, machines, etc.
III) The positive NPV on either financing option or investing option will depend on the future cash flows accounted in the analysis, which does not depend on the type of decision.
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