If a firm's Return on Invested Capital (ROIC)is consistently greater than the firm's cost of capital,then:
A)the firm should consider borrowing more money in an effort to increase the cost of capital.
B)this should help drive up the stock price.
C)the firm's net working capital is too low.
D)All of the above.

Question

Quizplus · Accepted Answer

When a firm's ROIC is consistently greater than its cost of capital, this means that the firm is generating positive returns on its investments in excess of the cost of financing those investments. This is generally a positive indicator for investors and should help drive up the stock price. Option A is not a good choice because borrowing more money would increase the firm's cost of capital and potentially reduce its ROIC. Option C is not relevant to this scenario as net working capital is not directly related to ROIC or cost of capital.

If a Firm's Return on Invested Capital (ROIC)is Consistently Greater