When an MNC's firm's cost of capital rises,it would be _______ likely to divest an existing project,other things held constant.
A) more
B) less
C) neither;there is no effect
D) neither;MNCs do not ever divest projects

Question

Quizplus · Accepted Answer

When an MNC's cost of capital rises, it becomes more expensive to finance projects. Therefore, the MNC may choose to divest an existing project to reduce its capital outlay and focus on projects with a lower cost of capital. This would allow the MNC to free up capital that is tied up in the existing project and redirect it to higher-return projects. So, the likelihood of divestment would be higher when the cost of capital rises.

When an MNC's Firm's Cost of Capital Rises,it Would Be