CBSE (Commerce) Class 12CBSE
Share
Notifications

View all notifications

The Return on Investment (Roi) of a Company Ranges Between 10-12% for the Past Three Years. to Finance Its Future Fixed Capital Needs, It Has the Following Options for Borrowing Debt Which Source of Debt, ‘Option A’ Or ‘Option B’, is Better? Give Reasons in Support of Your Answer. Also, State the Concept Being Used in Taking the Decision. - CBSE (Commerce) Class 12 - Business Studies

Login
Create free account


      Forgot password?

Question

The Return on Investment (ROI) of a company ranges between 10-12% for the past three years. To finance its future fixed capital needs, it has the following options for borrowing debt:
Option ‘A’: Rate of interest 9%
Option ‘B’: Rate of interest 13%

Which source of debt, ‘Option A’ or ‘Option B’, is better? Give reasons in support of your answer. Also, state the concept being used in taking the decision.

Solution

Option A is better than Option B for the company to finance its future fixed capital needs.
Reason: In Option A, Rate of return on investment (10–12%) > Rate of interest on borrowings (9%)

A concept used: Trading on equity

  Is there an error in this question or solution?
Solution The Return on Investment (Roi) of a Company Ranges Between 10-12% for the Past Three Years. to Finance Its Future Fixed Capital Needs, It Has the Following Options for Borrowing Debt Which Source of Debt, ‘Option A’ Or ‘Option B’, is Better? Give Reasons in Support of Your Answer. Also, State the Concept Being Used in Taking the Decision. Concept: Financial decisions - investment.
S
View in app×