Firms decide how much to invest by comparing the rate of return on their projects with the
A) total profit.
B) productivity of the workers assigned to the projects.
C) interest rate.
D) before-tax rate of return.

Question

Quizplus · Accepted Answer

Firms compare the rate of return on their projects with the interest rate to decide how much to invest, as they want to ensure that the return on their investment is greater than the cost of borrowing the funds to finance the project. A higher interest rate may discourage firms from investing, while a lower interest rate may encourage them to invest more.

Firms Decide How Much to Invest by Comparing the Rate