Question

Investment decision involves number of calculations regarding the amount of investment, interest rate, cash flows and rate of return.

• A. True
• B. False

Answer 1

The correct option is A True

Investment decision not only involves allocating capital to long term assets but also involves decisions of using funds which are obtained by selling those assets which become less profitable and less productive. It wise decisions to decompose depreciated assets which are not adding value and utilize those funds in securing other beneficial assets. An opportunity cost of capital needs to be calculating while dissolving such assets. The correct cut off rate is calculated by using this opportunity cost of the required rate of return.