Final answer:
The firm's cost of financing is equal to its cost of investment, which includes the interest rate.
Step-by-step explanation:
The firm's cost of financing is equal to its cost of investment, which includes the interest rate. Interest rates play a significant role in determining how much investment a firm will make. Lower interest rates stimulate investment spending, while higher interest rates reduce it. The cost of financing also includes the cost of financial capital, such as interest and dividends for the use of loans and equity investments.