A firm's cost of equity is 12%. The firm is all-equity financed. An investment opportunity has come up with an expected return of 10%. The firm is debating whether to divert $5m from a planned dividend payment of $11m to finance the investment because the dividend is optional. The firm should:

a. Invest in the project and reduce the dividend 

b. Invest in the project and borrow to maintain the dividend 

c. Not invest in the project 

d. Invest in the project from retained earnings without reducing the dividend

Answer rating: 100% (QA)

Answer The c... View the full answer