Describes the expected rate of return on the new venture

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Problem 1: Ladies Department of Kikay Clothing Company has retained a positive residual income and is now planning to invest in a new venture that will increase residual income but decreases the department's total return on investment .Which statement describes the inter relations between the expected rate of return on the new venture, the firm's cost of capital, and the department's present ROI?

a. Some other answer.

b. The department's current return on investment is higher than the expected rate of return on the new project but lower than the firm's cost of capital used as the required rate of return.

c. The expected rate of return on the new venture is higher than the department's current return on investment but lower than the firm's cost of capital, which is being used as its required rate of return.

d. The firm's cost of capital used as the required rate of return is higher than the expected rate of return on the new venture but lower than the department's current return on investment.

e. The expected rate of return on the new venture is higher than the firm's cost of capital used as the required rate of return but lower than the department's current return on investment.

Reference no: EM132743723

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