Suppose You Could Borrow $500,000 for One Year at an Interest

question 189

Short Answer

Suppose you could borrow $500,000 for one year at an interest rate of 10 percent.You were virtually certain of investing this $500,000 for one year and making a profit of $75,000 (from which you would pay the interest you owe).
-Would the deal be acceptable if the interest rate were 20 percent?

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Definitions:

Rented Capital

The use of assets or equipment by a firm for a period of time in exchange for payment without owning them.

Capital Usage

Refers to how assets are employed within a firm to generate value, emphasizing the effective application of physical and financial capital.

Capital Inputs

The goods or services used to produce other goods or services, particularly those which are fixed like machinery or buildings versus labor.

Interest Rate

The cost of borrowing money, typically expressed as an annual percentage of the principal.