If the Interest Rate at Which a Firm Can Borrow

question 124

Multiple Choice

If the interest rate at which a firm can borrow or lend is 10 percent, then the firm will own

• A)all units of capital with a marginal revenue product below 10 percent.
• B)all units of capital with a marginal revenue product above 10 percent.
• C)all units of capital with an average revenue product below 10 percent.
• D)all units of capital with an average revenue product above 10 percent.
• E)no capital at all.

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Definitions:

Net Present Value

A calculation that compares the present value of cash inflows to the present value of cash outflows over a period of time to evaluate an investment.

Depreciable Equipment

Tangible assets used in business operations whose cost is allocated over its useful life due to wear and tear, obsolescence, or decay.

Operating Assets

Assets that are used in the day-to-day operations of a business, such as machinery, buildings, and equipment.

Discount Rate

The interest rate used in discounted cash flow analysis to determine the present value of future cash flows, reflecting the time value of money and risk of the investment.