For a firm facing financing constraints on its investment spending, the most important determinant of how much it invests is the:
A) firm's expected future profitability.
B) firm's current profitability.
C) interest rate.
D) firm's cost of capital.

Question

Quizplus · Accepted Answer

For a firm facing financing constraints, its current profitability is the most important determinant of how much it can invest. This is because current profits can be directly reinvested into the firm, bypassing external financing needs which might be restricted or more costly.

For a Firm Facing Financing Constraints on Its Investment Spending