A company that produces wallpaper is considering buying some new equipment that it expects will increase future profits.If the interest rate falls,then the present value of these future earnings
A)rises.The company is more likely to buy the equipment.
B)rises.The company is less likely to buy the equipment.
C)falls.The company is more likely to buy the equipment.
D)falls.The company is less likely to buy the equipment.

Question

Quizplus · Accepted Answer

When the interest rate falls, the discount rate used in present value calculations also falls. This means that future earnings will have a higher present value, making the investment more attractive. Therefore, the company is more likely to buy the equipment.

A Company That Produces Wallpaper Is Considering Buying Some New