Chartered Financial Analyst Level 1
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An investor is evaluating the opportunity cost of investing in a Certificate of Deposit (CD) with a 2.2% interest rate compared to other CDs with higher rates. Assuming all CDs have identical maturity and default risk, the opportunity cost of choosing CD 1 is most accurately described by which of the following?
Explanation:
The correct answer is A because debt issuances raise capital for a company, making them a source of capital, not a use.
Option B is incorrect because share repurchases require a company to utilize its capital, making them a use, not a source, of capital.
Option C is incorrect because positive net working capital indicates that a company's capital is being used to support current assets exceeding current liabilities, making it a use of capital. Conversely, negative net working capital would act as a source of capital.