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  • Remember, You Can Decide On Investment Based On Mere Cost of Capital Only When Return On Investment Is A Sure Thing

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    LaxminarayanaMurthy
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    An investment opportunity offers a guaranteed 12% return on $100,000 invested. This would be a good investment decision since the return is higher than the investor's 10% cost of capital for borrowing the same amount. A guaranteed return allows the investment decision to be based solely on comparing the return to the cost of capital.

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    An investment opportunity offers a guaranteed 12% return on $100,000 invested. This would be a good investment decision since the return is higher than the investor's 10% cost of capital for borrowing the same amount. A guaranteed return allows the investment decision to be based solely on comparing the return to the cost of capital.

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    17 views1 page

    Remember, You Can Decide On Investment Based On Mere Cost of Capital Only When Return On Investment Is A Sure Thing

    Uploaded by

    LaxminarayanaMurthy
    An investment opportunity offers a guaranteed 12% return on $100,000 invested. This would be a good investment decision since the return is higher than the investor's 10% cost of capital for borrowing the same amount. A guaranteed return allows the investment decision to be based solely on comparing the return to the cost of capital.

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    © All Rights Reserved
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    4173-1-26PP

    AID: 8873 | 20/08/2015

    Guaranteed return and investment decision


    If the return is guaranteed, then you can decide on your investment simply based on
    your cost of capital. Suppose, I can borrow $100,000 @10% and invest in a guaranteed
    investment with return 12%, then I will invest in that because my return is more than my
    cost of capital and also return is guaranteed (Remember, you can decide on investment
    based on mere cost of capital only when return on investment is a sure thing).

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