A Manager in an Investment Center Is Offered a Potential

question 13

Multiple Choice

A manager in an Investment Center is offered a potential investment that would have an ROA of 15 percent. After the investment, it would make up 20 percent of his total portfolio. Currently, he makes 20 percent on his portfolio, though the company requires only 12 percent. Which of the following is true?

• A) He will make the investment since it is 3 percent greater than the company's required return.
• B) He will make the investment because a larger portfolio is always better than a smaller portfolio.
• C) He will not make the investment because it the company prefers 12 percent
• D) He will not make the investment because it lowers his over all return to 19 percent.

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Definitions:

Marginal Cost

The hike in cost associated with the creation of an extra unit of a good or service.

Average Total Cost

The total cost of production divided by the quantity produced, representing the average cost per unit of output.

Average Variable Cost

The cost of labor, material, or overhead that changes in direct proportion to the level of production or output.

Total Cost

The sum of all expenses incurred in the production of goods or services, including both fixed and variable costs.