An Increase in Borrower Net Worth Will Result in

question 10

Multiple Choice

An increase in borrower net worth will result in

• A)higher output and a higher real interest rate.
• B)higher output, but a lower real interest rate.
• C)lower output and a lower real interest rate.
• D)lower output, but a higher real interest rate.

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Definitions:

Capital Budgeting

The process of planning significant investments in projects that have long-term implications such as the purchase of new equipment or the introduction of a new product.

Internal Rate

Commonly identified as the internal rate of return (IRR), this is the discount rate that sets the net present value (NPV) of all cash flows associated with a specific project to zero.

Discounted Cash Flow

A valuation method used to estimate the value of an investment based on its expected future cash flows, adjusted for time value of money.

Working Capital

The difference between a company's current assets and current liabilities, indicating the short-term liquidity.