A firm should make an investment if the expected return is greater than
A) the marginal cost of the investment.
B) the fixed cost of the investment.
C) the opportunity cost of the investment.
D) the expected rate of inflation.

Question

Quizplus · Accepted Answer

The opportunity cost of the investment represents the return that the company could earn on its assets if they were used in their next best alternative use. Therefore, if the expected return of the investment is greater than the opportunity cost, it would be profitable for the firm to make the investment. The marginal cost and fixed cost of the investment only represent the costs incurred by the company, while the expected rate of inflation does not affect the profitability of the investment decision.

A Firm Should Make an Investment If the Expected Return