The Eye of Horus incense company has $10 million in cash which it has accumulated from retained earnings. It was planning to use the money to build a new factory. Recently, the rate of interest has increased. The increase in the rate of interest should

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Business

Ernesto Mckenzie

2 February, 07:59

The Eye of Horus incense company has $10 million in cash which it has accumulated from retained earnings. It was planning to use the money to build a new factory. Recently, the rate of interest has increased. The increase in the rate of interest should

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Isaiah Lara · Answer 1

D) make it less likely that The Eye of Horus will build the factory because the opportunity cost of the $10 million is now higher.

Explanation:

Since the interest rate increased, the opportunity cost of using that money for building a new factory also increases. Now the company must recalculate again if it is worth it or not to build the new factory or invest the money in another project that might yield higher returns.

This doesn't mean that the factory will not be built, but it means that the new factory will have to compete with other projects.