Question

Thinking in terms of the goal of wealth maximization, a project breaks even for shareholders, meaning that it neither creates nor destroys value, if a) its NPV equals 0 b) its IRR equals 0 c) its net profit after taxes equals 0 d) its payback period is one year or less

Answer 1

Answer is Option a

Wealth is maximized by a project that offers the maximum NPV and hence adds maximum value to shareholders. A negative NPV project erodes value to shareholders. This implies, for the break-even point, NPV should be zero. At this point, investor would be in different between rejecting or accepting the project.