Under the value-to-book model new projects will be less profitable only when:
A) ROCE equals ROA
B) ROCE equals RE
C) ROCE is greater than RE
D) ROCE is less than RE

Question

Quizplus · Accepted Answer

Under the value-to-book model, new projects will be less profitable only when the ROCE (return on capital employed) is less than the RE (required return on equity). A lower ROCE means that the project is unable to generate sufficient returns to cover the cost of capital, including equity, debt, and other financing sources. Thus, the best choice is D as it indicates a lower ROCE than RE.

Under the Value-To-Book Model New Projects Will Be Less Profitable