What is investment?
money spent or expenditures on:
- New
plants (factories)
- Capital
equipment (machinery)
- Technology
(hardware and software)
- New
homes
- Inventories
(goods sold by producers)
Expected
rates of return
How does business
make investment decisions?
- Cost/
benefit analysis
How does business
determine the benefits?
- Expected
rate of return
How does business
count the cost?
- Interest
costs
How does business
determine the amount of investment that they undertake?
- Compare
expected rate of return to interest cost
-if expected return > interest cost, then invest
- if expected return < interest cost, then do not invest
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