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Q: financial management ( Answered 3 out of 5 stars,   0 Comments )
Question  
Subject: financial management
Category: Business and Money > Finance
Asked by: france1-ga
List Price: $6.00
Posted: 10 Feb 2005 19:26 PST
Expires: 12 Mar 2005 19:26 PST
Question ID: 472680
Discuss how a rise in interest rates can impact the investement
decisions of managers whether to go ahead with a corporate project or
not? Be specific and provide an example.
Answer  
Subject: Re: financial management
Answered By: wonko-ga on 10 Feb 2005 20:05 PST
Rated:3 out of 5 stars
 
A rise in interest rates makes borrowing for current expenditures more
expensive and future revenues less valuable because of the time value
of money.  Therefore, projects requiring significant borrowing and/or
with long waits until they generate profits are less attractive when
interest rates rise.

An example of the type of project that would be less attractive in a
rising interest-rate environment would be development of a new
airplane.  Billions of dollars of expense are incurred upfront and
require several years to generate any revenues at all.  Payback of the
investment and profits require multiple years of revenues, further
increasing the amount of time between the initial investment and a
return on it.

Sincerely,

Wonko
france1-ga rated this answer:3 out of 5 stars

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