Question

Because of the role that the ROI plays in evaluating an investment expenditure, what kind of...

Because of the role that the ROI plays in evaluating an investment expenditure, what kind of an effect does the ROI have on investment spending?

A.) no effect
B.) a positive effect
C.) a negative effect
D.) it could have any of these effects
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Answer #1

The correct choice is D

Explanation : - As the interest rate rises, the firm's cost of borrowing also rises, and the return on investment falls. The higher interest rate reduces the return on the investment and discourages investment spending. On the other hand, a lower interest rate reduces the firm's cost of borrowing and the return on investment inceases. Thus lower interest rate increases the return on investment and encourages investment spening. If the intetest rate remains the same, the cost of borrowing remains the same and a unchanged interest rate has no effect on investment spending.

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