In determining the optimal capital budget,one should choose those project's whose ____ exceeds the firm's ____ cost of capital.
A) internal rate of return,average
B) internal rate of return,marginal
C) internal rate of return,historic
D) average rate of return,marginal
E) none of the above

Question

Quizplus · Accepted Answer

The optimal capital budget will be determined by selecting projects with an internal rate of return (IRR) that exceeds the company's marginal cost of capital. The IRR is the rate at which the net present value (NPV) of a project equals zero, and it represents the project's expected rate of return. The marginal cost of capital is the cost of raising one additional dollar of capital, which is typically higher than the average cost of capital as it takes into account the increasing cost of raising additional funds. Therefore, only projects with an IRR that is greater than the marginal cost of capital will generate positive NPV and increase the firm's value.

In Determining the Optimal Capital Budget,one Should Choose Those Project's