The market interest rate is important to the investment decision of firms:
A)only when funds are borrowed from financial intermediaries.
B)only when firms have the money to invest in capital.
C)regardless of whether funds must be borrowed or firms have the funds on hand.
D)only when firms have funds on hand and are ready to lend them.
E)only when firms purchase new equipment rather than a new building.

Question

Quizplus · Accepted Answer

The market interest rate affects the cost of borrowing for firms and also the opportunity cost of not investing in other assets. It is relevant to the investment decision regardless of whether the firm has funds on hand or must borrow them.

The Market Interest Rate Is Important to the Investment Decision