A Company with an ROIC of 45 Percent and a Cost

question 3

Multiple Choice

A company with an ROIC of 45 percent and a cost of capital of 8 percent is considering an investment opportunity of similar risk to its existing investments.If the new opportunity would generate a 30 percent ROIC,what should the company do?

• A)The company should invest in this project,as 30 percent is pretty close to the 45 percent that the company currently achieves.
• B)The company should not invest in the project,since the return is lower than its current return of 45 percent.
• C)The company should invest in the project,as its return is greater than the cost of capital.
• D)The company should not invest in the project,since it already enjoys a high ROIC and the new investment will dilute the overall returns.