The optimal capital budget:
A) occurs where the marginal cost of capital equals the marginal rate of return of the opportunity set of projects.
B) is typically larger for purely domestic firms than for MNEs.
C) is an illusion found only in international finance textbooks.
D) none of the above

Question

Quizplus · Accepted Answer

The optimal capital budget occurs where the marginal cost of capital equals the marginal rate of return of the opportunity set of projects. This ensures that the company is investing in projects that will generate a return that is at least equal to the cost of financing them. B and C are both incorrect statements.

The Optimal Capital Budget