Question
A firm is considering three investment projects which we will refer to as A, B, and C. Each project has an initial cost of $10
A firm is considering three investment projects which we will refer to as A, B, and C. Each project has an initial cost of $10 million. Investment A offers an expected rate of return of 16%, B of 8%, and C of 12%. The firm's cost of capital is 6% if it borrows $10 million, 10% if it borrows $20 million, and 15% if it borrows $30 million.
The firm should invest in A and C because both have return higher than 10%. Explain why?
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Fundamentals Of Corporate Finance
Authors: Jonathan Berk, Peter DeMarzo, Jarrad Harford
5th Global Edition
1292437154, 978-1292437156
