The rates of return, or costs, that a firm must pay to raise funds to invest in capital budgeting projects are determined by:
A) the marginal revenue generated by investment in the new projects.
B) the investors who purchase the firm's stocks and bonds.
C) the internal rate of return of the firm.
D) the cash flow generated by the investment in the additional projects.
E) the dividend payout ratio fixed by the firm.

Question

Quizplus · Accepted Answer

The rates of return or costs that a firm must pay to raise funds to invest in capital budgeting projects are primarily determined by the investors who purchase the firm's stocks and bonds. The investors demand a certain rate of return or cost of capital to invest in the firm, which in turn affects the firm's cost of capital for investing in capital budgeting projects. Thus, choice (B) is the correct option.

The Rates of Return, or Costs, That a Firm Must