If the ROE on a new investment is less than the firm's required rate of return
A) the investment increases the firm's value.
B) the investment leaves the firm's value unchanged.
C) the effect on the firm's value is unpredictable.
D) the investment reduces the firm's value.

Question

Quizplus · Accepted Answer

If the ROE on a new investment is less than the firm's required rate of return, it means the investment is not generating enough return to justify the cost of the investment. This results in a negative net present value, indicating that the investment will reduce the firm's overall value. Therefore, the correct answer is D.

If the ROE on a New Investment Is Less Than