A business will be likely to borrow to fund projects if:

Question

Quizplus · Accepted Answer

A business will be more likely to borrow if the project's rate of return is at least as high as the interest rate on the loan. This ensures that the business will earn enough profit to cover the cost of borrowing and make a profit. Option A is incorrect because if the rate of return is less than the interest rate, then the business will lose money on the project. Option B is not necessarily true because even though there may be high demand for the good or service, it may not generate enough profit to cover the borrowing costs. Option D is unrelated to borrowing and pertains to production efficiency.

A Business Will Be Likely to Borrow to Fund Projects