U.S.Phones is considering buying new equipment to build a factory.If the interest rate rises,
A) the present value of the returns from the factory will fall,so U.S.Phones will be less likely to build the factory.
B) the present value of the returns from the factory will fall,so U.S.Phones will be more likely to build the factory.
C) the present value of the returns from the factory will rise,so U.S.Phones will be less likely to build the factory.
D) the present value of the returns from the factory will rise,so U.S.Phones will be more likely to build the factory.

Question

Quizplus · Accepted Answer

When interest rates rise, the cost of borrowing money increases. This means that the cost of financing the new equipment to build the factory also increases. As a result, the present value of the returns from the factory will fall, making the investment less attractive. Therefore, U.S. Phones will be less likely to build the factory.

USPhones Is Considering Buying New Equipment to Build a Factory