In order to maximize firm value, management should invest in new assets when cash flows from the assets are discounted at the firm's ________ and result in a positive NPV.

Question

Quizplus · Accepted Answer

The firm's cost of capital represents the minimum rate of return that investors require in order to invest in the firm. Therefore, investing in new assets that generate cash flows discounted at this rate will increase the firm's value. Both B and C may be used in the analysis, but they do not represent the broadest measure of the required rate of return. D is a measure of the rate of return generated by the project, not the cost of capital required by investors.

In Order to Maximize Firm Value, Management Should Invest in New