Question
In: Economics
When a firm borrows funds to pay for an investment project, it invests in the project...
When a firm borrows funds to pay for an investment project, it invests in the project when __________. When a firm uses its own funds to pay for an investment project, it invests in the project when __________.
| a. |
the real interest rate is less than the real profit rate, the real profit rate is less than the real interest rate |
|
| b. |
the real interest rate is less than the real profit rate, the real interest rate is less than the real profit rate |
|
| c. |
the real profit rate is less than the real interest rate, the real profit rate is less than the real interest rate |
|
| d. |
the real profit rate is less than the real interest rate, the real interest rate is less than the real profit rate |
Solutions
Expert Solution
When a firm borrow funds to invest, it invest in the project when real profit rate is more than real interest rate such that they can earn some money after paying money back to the bank with interest.
When they use their own funds, they invest when real profit rate is less than real interest rate because they can lend the same money and earn higher rate of interest without investing it anywhere.
Option A is correct.
Rahul Sunny answered 2 years agoRelated Solutions
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