Question

Which is TRUE regarding the trade-off a firm makes when it spends money on an investment project? A. The trade-off a firm faces when using retained earnings or borrowed funds is the same. B. Borrowing money will always be more expensive than using retained earnings. C. Using retained earnings has a higher opportunity cost than does using borrowed money because retained earnings come from past profits. D. The cost of retained earnings is unrelated to the cost of borrowing money.

Answer 1

Answer:

A. The trade-off a firm faces when using retained earnings or borrowed funds is the same.

Explanation:

• A trade-off is based on the situational decisions that usually involve the loss of quality and a property that is set or designed to give a return in the other aspects.
• As one part has to increase and the other has to decrease. The trade-off is commonly expressed as in the terms of opportunity costs which states the loss of the best alternative.