Suppose a firm has an investment project which will cost $200,000 and result in $30,000 profit. The firm will not undertake the project if the interest rate is ________.

Question

Quizplus · Accepted Answer

The firm will not undertake the project if the interest rate is greater than 15 percent because the profit of $30,000 represents a 15 percent return on the $200,000 investment. If the interest rate exceeds this return, the cost of borrowing would outweigh the profit.

Suppose a Firm Has an Investment Project Which Will Cost