A firm's decision to invest in a project is based on the
A)real interest rate and expected total revenue.
B)nominal interest rate and expected total revenue.
C)nominal interest rate and the expected profit.
D)real interest rate and the expected profit.
E)expected future income, wealth, and default risk.

Question

Quizplus · Accepted Answer

A firm's decision to invest in a project is based on the real interest rate, which accounts for inflation and the expected profit, which takes into consideration the project's costs and revenue. The nominal interest rate and expected total revenue may provide some information, but they do not account for inflation and costs. Expected future income, wealth, and default risk may also be important factors, but they are not the primary basis for the investment decision.

A Firm's Decision to Invest in a Project Is Based