A Firm Finances Its Activities with Both Debt (That Costs

Multiple Choice

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 desire,and any earnings above 8% will go to stockholders.If a firm decides to make investments based on this logic it will ________.

A) decline to make investments that it should undertake
B) undertake investments that it should decline
C) make only those investment decisions that increase shareholder value
D) have exorbitant interest expenses