A profit-maximizing firm should not undertake an R&D project for which the
A)expected rate of return exceeds its interest-rate cost of funds.
B)interest-rate cost of funds exceeds the expected rate of return.
C)expected returns are in the distant future.
D)expected returns, though potentially very large, are uncertain.

Question

Quizplus · Accepted Answer

A profit-maximizing firm should not undertake an R&D project if the interest-rate cost of funds exceeds the expected rate of return. This is because the project would not cover its cost of capital, leading to a decrease in firm value.

A Profit-Maximizing Firm Should Not Undertake an R&D Project for Which