A firm's decision to invest in a project is based on the
A)nominal interest rate and the expected profit.
B)real interest rate and expected total revenue.
C)real interest rate and the expected profit.
D)expected future income, wealth, and default risk.
E)nominal interest rate and expected total revenue.

Question

Quizplus · Accepted Answer

A firm's decision to invest in a project is based on the real interest rate, which takes inflation into account, and the expected profit, which is the revenue minus the cost of the investment. The nominal interest rate and expected total revenue are not used to make investment decisions. Expected future income, wealth, and default risk may be factors considered in investment decisions, but they are not the primary determinants of whether a project is financially viable.

A Firm's Decision to Invest in a Project Is Based