Question

Discuss why sometimes management may want to undertake an acquisition even though it may be a negative NPV project?

Answer 1

while taking any investment proposal,the management are considering the net present value,ie checks whether it is positive or negative.they always accept the project with positive NPV. Sometimes the management may take projects with negative NPV. the reasons for adopting a negative NPV project are,sometimes a negative NPV can make profits in the long run.If there are more investment proposals,then they can adopt positive as well as negative NPV projects,because the loss from one investment can be compensated with projects having profit.sometimes Learning from failure gives better results.so the management can adopt negative NPV as a challenge to improve the business in future.