A firm finances its activities with both debt (that costs 8%) and equity (that costs 14%). The firm can borrow additional funds at 8% if it so desires. A financial analyst at this firm argues that the firm should undertake only those investments that earn a return of at least 14% because only those investments will increase shareholder value If a firm decides to make investments based on this logic it will ________.

a. undertake investments that it should decline

b. have exorbitant interest expenses

c. decline to make investments that it should undertake

d. make only those investment decisions that increase shareholder value

I believe the answer is D.

Note: answer A is wrong.