If a firm is considering using its own funds (rather than borrowing) to finance investment projects, will higher interest rates discourage the firm from undertaking these projects? Explain. (Hint: Think of yourself as the owner of a firm that has earned profits and imagine that you are going to use the profits either to finance new investment projects or to buy bonds. Will your decision to invest in new projects in your firm be affected by the interest rate?)
Added by Emilio V.
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Step 1: When a firm uses its own funds to finance investment projects, it is not borrowing money and therefore not subject to interest rates. Show more…
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