CHAPTER 8

Determining the Interest Rate

Capital Budgeting and the Interest Rate

The interest rate plays an important role in investment decisions. An entrepreneur needs capital to invest. The process of making investment decisions is known as capital budgeting. Capital budgeting is a complex process and involves numerous stages such as choosing appropriate products in which to invest in each period, choosing when to introduce the product to the market, deciding how much to produce, determining how capital should be allotted, identifying necessary sources of loanable funds, and creating a business plan for the project. These and other related materials are discussed in the theory of capital, the details of which are beyond the scope of this text. ...

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