Question

Suppose that Intel is considering building a new chipmaking factory. If Intel has enough of its own funds to finance a new factory without borrowing, would an increase in interest rates still affect Intel's decision about whether to build a new factory? Explain (opposed to borrowing money from the bond market that has the before mentioned increased interest rate)

Answer 1

It is given that Intel is using its own funds to finance the new factory. Even when this is the case, the interest rate matters though not directly but indirectly.

Everything has an opportunity cost ie the cost of not using the resources to next best alternative. Intel also has opportunity cost. There are many alternative uses of funds to intel.

Since the interest rate have increased, the funds could have been simply invested into bond markets or similar instruments to earn interest which has increased. There are many such opportunities which Intel could have considered.

So even though it is using its own funds, the interest rate changes in the market affect Intel.

(You can comment for doubts)