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14 December, 10:38

Company A has an internal cost of capital of 7% annually. It is evaluating its investment options against its internal costs and has identified three potential investments: Investment A: Bond with annual returns of 8% Investment B: Bond with annual returns of 4% Investment C: Bond with annual returns of 12%

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  1. 14 December, 10:49
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    The question is incomplete. This is the complete question:

    Company A has an internal cost of capital of 7% annually. It is evaluating its investment options against its internal costs and has identified three potential investments:

    Investment A: Bond with annual returns of 8%

    Investment B: Bond with annual returns of 4%

    Investment C: Bond with annual returns of 12%

    Which of the above investments should the company consider taking on given its internal cost of capital?

    Select one:

    a. A only

    b. C only

    c. A and C only

    d. B only

    Answer:

    The answer is c. A and C only.

    Explanation:

    The company should consider investment A (bond with annual returns of 8%) and investment C (bond with annual returns of 12%) because both of these investments have annual returns (8% and 12%, respectively) that are higher than the company's internal capital cost, and would ensure that the company makes profit/gain, no matter how little.
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