A firmʹs decision to invest in a project is based on the
A) real interest rate and expected total revenue.
B) nominal interest rate and expected total revenue.
C) real interest rate and the expected profit.
D) nominal interest rate and the expected profit.

Question

Quizplus · Accepted Answer

A firm's decision to invest in a project is based on the real interest rate and the expected profit. Real interest rate takes into account the inflation rate, which can influence the purchasing power of the invested money. Expected profit includes the projected revenues and expenses associated with the project, and is a key factor in determining whether the investment is worth pursuing. Nominal interest rate only takes into account the stated rate of return on the investment, without adjusting for inflation, and is therefore less useful in determining the actual value of the investment.

A Firmʹs Decision to Invest in a Project Is Based