Suppose Your Firm Is Considering an Investment Project That Will

question 36

Multiple Choice

Suppose your firm is considering an investment project that will generate an expected return of 15%. The project costs $200,000. Suppose further that your firm has $100,000 of retained earnings. If the market interest rate is 10%, your firm should

• A) loan the retained earnings out at 5%.
• B) loan the retained earnings out at 10%.
• C) loan the retained earnings out at 15%.
• D) invest the $100,000 of retained earnings in the project and borrow the remaining $100,000 at the interest rate of 10%.