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a firm finances its activities with both debt (that costs 8%) and equity (that costs 14%). the firm can borrow additional funds at 8% if it so desires. a financial analyst at this firm argues that the firm should undertake any investment that earns a return of at least 8% because such investments will enable the firm to pay debtholders what they require, and any earnings above 8% will go to stockholders. if a firm decides to make investments based on this logic it will .

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It is to be noted that if a firm decides to make investments based on this logic as argued by the financial analyst, it will decline to make investments that it should undertake.

What is an Investment?

An investment is an asset or object purchased with the intention of earning revenue or increasing in value.

An increase in the worth of an asset over time is referred to as appreciation. When a person buys a thing as an investment, the intention is not to consume the commodity but rather to utilize it to build wealth in the future.

Learn more about Financial Analysts:
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