Question

If the firm finances investment spending out of retained earnings, then the interest rate is: Please choose the correct answer from the following choices, and then select the submit answer button. Answer choices the equivalent of income plus transfers minus taxes. the ratio of the total change in real gross domestic product (GDP) caused by an autonomous change in aggregate spending to the size of that autonomous change. the opportunity cost of using those funds for a particular investment project. irrelevant.

Answer 1

Answer: the opportunity cost of using those funds for a particular investment project.

Step-by-step explanation:

Financing investment from the retained earnings of a company might seem like a costless method of sourcing funds but there is a cost that needs to be accounted for. This is the opportunity cost of not using those retained earnings for something else.

For instance, if Parrain Inc. decided to expand using retained earnings when they could have invested in a project that gave a return of 12% per year, the interest rate for the expansion is that 12% they could have earned from the other project.