14.04.2009 CHAPTER 9 BUILDING THE AGREEGATE EXPENDITURES MODEL Investment The decision to invest depends upon the comparison of marginal benefit and the marginal cost of the investment. In order to decide to invest the additional net profit, that is additional revenue minus additional cost should be positive. 1.Expected Rate of Return (ERR or r): The expected rate of return is the ratio of net profits to the cost of capital. Example: Gross profit: $1100 and cost of capital: $1000 The net profits become $100. And the ERR= (1100-1000)/100=10% 2.The Interest Rate (i, %): The cost of capital includes the cost of borrowing that is the interest rate.
This is the end of the preview. Sign up
access the rest of the document.
This note was uploaded on 01/01/2012 for the course MIS 132 taught by Professor Hasandag during the Spring '11 term at Kadir Has Üniversitesi.