The board of OKN is considering an investment opportunity that will require the company to borrow a large amount in month 10 of the current financial year and to invest it immediately in property, plant and equipment. This investment has a positive net present value that justifies the risk, but the directors are reluctant to invest in the project.
Why might the directors be reluctant?
A . The return on capital employed for the year will be reduced if the investment is made.
B . The return on capital employed for the year will be increased if the investment is made.
C . The year’s profit will be depressed by the amount of the investment.
D . Future profits will be depressed.
Answer: A
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