Question

Explain why a firm $1 million in the bank would care about the market interest rate when investing $10 million into a new building, after all they do not need to borrow money. When would they undertake this investment project?

Answer 1

a firm would care about the market interest rate when investing $10 million into a new building, because the present value of this investment will decrease over time. They would undertake this investment project, if the net present value of this project is positive.