Optimal Budget Question investment, schedule, average, capital, moving

bcp901

A firm’s optimal budget can be found by moving along its investment opportunity schedule until:
A. it exhausts its capital budget
B. average project return is equal to average cost of capital
C. the next project’s return is less than the marginal cost of capital

zephyranalyst

But why would you want your next project’s return to be below the MCC? Wouldn’t you want it to be above?
By the way, C is the correct answer.