Page 191 - Microsoft Word - 00 P1 IW Prelims.docx

Answers

(c) Are these decisions in the best interests of the company?

The decision not to invest based on ROI is not in the best interests of the
company since the ROI (20%) is greater than the company’s cost of
capital (10%), i.e. dysfunctional behaviour.

The decision to invest based on RI is in the best interests of the company
since the project’s return of 20% is greater than the company’s cost of
capital of 10% (no dysfunctional behaviour).

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