Econ Micro (book Only)
6th Edition
ISBN: 9781337408066
Author: William A. McEachern
Publisher: Cengage Learning
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Question
Chapter 13, Problem 2P
To determine
To find:
The marginal cost of investing in the firm when we are given the expected
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23. Joe's Build Back Better (BBB) Ammo Corp has $15 million in cash, which it has
accumulated from retained earnings. It was planning to use the money to build a new
factory. Recently, the interest rate has increased. How does this influence the company's
decision, assuming the alternative to investing in a factory is loaning the money out?
(A) It doesn't, since the company's shareholders are expecting a new factory.
(B) It is more likely to build the factory because a higher interest rate makes the
factory more valuable.
(C) It is less likely to build the factory, since the opportunity cost of using the funds
to build a factory rises with a higher interest rate.
(D) It doesn't influence their decision, since the company does not need to borrow
money to build the factory.
STRICTLY SKETCH OF GRAPH THE CASH FLOW DIAGRAM. (Economics)
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