Changes in Which of the Following Change the Demand for Capital

question 3

Multiple Choice

Changes in which of the following change the demand for capital and shifts the demand curve for capital?

• A) current income
• B) expected future income
• C) the rental rate
• D) the marginal product of capital

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Definitions:

Net Present Value

The variance between the current value of cash coming in and the current value of cash going out over a time span.

Discount Rate

The interest rate used in determining the present value of future cash flows or in evaluating the attractiveness of an investment.

Project Cash Flows

The net amount of cash that is generated or expended by a particular project or investment, after accounting for all inflows and outflows.

Project Profitability Index

The ratio of the net present value of a project’s cash flows to the investment required.