Beige Inc. has to choose from three projects whose internal rates of return (IRRs) are more than the marginal cost of capital (MCC). Beige should choose those projects that _____.
A) minimize the marginal cost of capital
B) maximize the excess of internal rate of return over marginal costs
C) maximize the dividend payout
D) maximize the cash flow from investment in projects
E) minimize the rate of return to the investors

Question

Quizplus · Accepted Answer

Beige should choose the projects that maximize the excess of internal rate of return (IRR) over marginal costs, as this will generate the highest return on investment. Choosing projects that minimize the marginal cost of capital (A), maximize dividend payout (C), or minimize the rate of return to investors (E) may not necessarily lead to the highest returns for the company. Maximizing cash flow from investment in projects (D) could be a consideration, but the projects' IRRs would still need to be taken into account.

Beige Inc Has to Choose from Three Projects Whose Internal Rates