During the 1980s, the cost of capital for U.S. firms averaged about 3.3 percentage points higher than Japanese firms. During 1990 this disadvantage may have disappeared due to ____.

Question

Quizplus · Accepted Answer

The cost of capital is the rate of return required to persuade investors to invest in a company. If the real interest rates in Japan are higher than in the US, then the cost of capital for Japanese firms would increase, making them less competitive compared to US firms. Hence, this would negate the 3.3 percentage point disadvantage that US firms faced in the 1980s.

During the 1980s, the Cost of Capital for U