Question

the Return on investment of a company ranges between 10% and 12% for the past 3years. to finance it's 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 B is better​

Answer 1

Answer:

Option A is better as in order to raise fixed capital, the ROI (Rate of return on investment), i.e. 10-12% should be higher than the interest rate on borrowings, i.e. 9% in option A. Thus, option A should be opted by the company.