Final answer:
A divisional manager may reject an investment with a positive NPV due to risk aversion, a focus on short-term goals, a limited budget, or unfavorable market conditions. These factors influence the manager to make decisions that prioritize stability, immediate financial performance, or available resources over potential long-term gains.
Step-by-step explanation:
A divisional manager (whose performance is measured by ROI) may reject an investment with a positive NPV because of a variety of reasons. Option 1, Risk Aversion, implies that the divisional manager might be reluctant to take on additional risk, despite the potential for a positive NPV. Managers may prefer to avoid investments that could potentially lead to variability in their performance outcomes, particularly if their compensation or job security is tied to consistent performance.
Option 2, Focus on Short-Term Goals, can be a reason if the manager is looking to boost ROI in the near term, even if it means passing up on investments that might be more profitable in the long run. Short-term pressures can often lead to bypassing long-term value creation.
Option 3, Limited Budget, points out that even if an investment has a positive NPV, there may not be sufficient funds available to pursue the investment without compromising other projects or financial stability.
Option 4, Market Conditions, considers external factors that might affect the actual returns of an investment, making the manager cautious about proceeding with the investment despite a theoretically positive NPV.