If your firm had $300,000,the going rate of interest on business loans was 12 percent and your firm's expected profit rate was 17 percent,what would you do with this money?

Question

Quizplus · Accepted Answer

The best choice would be to use the money to finance your own expansion since the expected profit rate of 17 percent is greater than the going rate of interest on business loans of 12 percent. This means that the return on investment would be higher than the cost of borrowing money. Keeping the money in the bank would not generate much return, and lending it to a competitor would not benefit your own firm.

If Your Firm Had $300,000,the Going Rate of Interest on Business