Asked by Svetlana Brenner on Jun 03, 2024
Verified
Profit-maximizing businesses will buy more new machinery only if
A) the interest rate increases.
B) labor costs are low and expected to fall.
C) the expected rate of return of the new machinery is greater than the interest rate.
D) the present value of the new machinery is lower than its purchase price.
Expected Rate of Return
Refers to the profit or loss an investor anticipates on an investment that has various known or expected rates of return.
Interest Rate
The cost of borrowing money or the reward for saving, typically expressed as a percentage of the principal amount per year.
New Machinery
Refers to recently developed or acquired equipment that is used in manufacturing or production processes.
- Acquire knowledge about the considerations in the investment decision-making process, particularly regarding interest rates and returns.
Verified Answer
ZK
Zybrea KnightJun 08, 2024
Final Answer :
C
Explanation :
The expected rate of return on new machinery must be greater than the interest rate for a profit-maximizing business to justify the investment. This means the returns from the investment will exceed the cost of borrowing or the opportunity cost of using the funds elsewhere.
Learning Objectives
- Acquire knowledge about the considerations in the investment decision-making process, particularly regarding interest rates and returns.