Which of the following statements regarding capital budgeting is correct? A firm’s optimal capital budget can be found by moving along its investment opportunity schedule until: a) it exhausts its capital budget b) the marginal revenue product is equal to marginal cost c) average project return is equal to average cost of capital d) the next project’s return no longer covers the marginal cost of capital
It’s between C and D. I’ll go with C - Dinesh S
D:…If the next project does not cover the marginal cost of capital, the NPV of the project will be -ve (since we use the marginal cost of capital as the discounting rate). Same concept as econ…MR = MC
I’d say D
answer is D.