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You are considering an investment opportunity that costs $100,000 and will return 12% on your investment.
You are considering an investment opportunity that costs $100,000 and will return 12% on your investment. There are alternative investments available in the financial markets that are comparable to this investment opportunity in terms of risk that will return 13%. However, a bank offers to lend you up to $100,000 at 8% with no conditions. Should you undertake this investment opportunity?
a.Yes because the return on the investment opportunity is greater than its opportunity cost of capital.
b.No because the return on the investment is less than its opportunity cost of capital.
