Asked by Elaine Burnside on May 21, 2024
Verified
Which statement is true?
A) A firm that uses its own funds,rather than borrow money,does not need to take the going rate of interest into account.
B) The only consideration that a firm undertaking an investment project needs to consider is the interest rate.
C) The concept of opportunity cost may be applied to a firm that is considering using its own funds for an investment project.
D) None is true.
Opportunity Cost
The cost of the next best alternative foregone as the result of making a decision.
Investment Project
A project undertaken by individuals, firms, or governments involving the allocation of resources to create future benefits, such as income or profit.
- Acknowledge how interest rates affect investment options and the expenses of foregone opportunities.
Verified Answer
KP
Keyshawn PeneauxMay 24, 2024
Final Answer :
C
Explanation :
The concept of opportunity cost applies to any decision-making process, including investment decisions made by firms. If a firm uses its own funds for an investment project, it must consider the opportunity cost of using those funds for alternative projects or investments. Thus, statement C is the only true statement. A is false because even if a firm uses its own funds, there is still an opportunity cost to consider. B is also false as there are other factors to consider besides the interest rate, such as risk and return. D is not a valid choice as statement C is true.
Learning Objectives
- Acknowledge how interest rates affect investment options and the expenses of foregone opportunities.