A growth company can invest in projects that generate a return greater than the firm's
A) return on equity.
B) cost of debt.
C) cost of equity.
D) cost of capital.
E) return on assets.

Question

Quizplus · Accepted Answer

A growth company should strive to invest in projects that generate a return that is greater than the cost of capital, as this reflects a positive net present value (NPV) and adds value to the company. The cost of capital considers both the cost of debt and the cost of equity, and is a better indicator of the required rate of return for an investment. Returns on equity and assets are important for assessing a company's profitability, but do not necessarily reflect the value created by new investments.

A Growth Company Can Invest in Projects That Generate a Return