The optimal capital budget occurs at the point where two curves intersect.Which of the following is/are one of those curves?

Question

Quizplus · Accepted Answer

Statement I is correct because the first curve is the incremental cost of capital curve (ICC), which shows the cost of capital for different levels of investment. The second curve is the net present value curve (NPV), which shows the net present value of the investment at different levels of investment. The optimal capital budget occurs where the ICC intersects the NPV curve, which gives the point of highest net present value for the investment. Therefore, both statements I and II are correct.

The Optimal Capital Budget Occurs at the Point Where Two