Econonmics Question Regarding Expected vs Market Rates?

I'm confused... should a company buy new equipment if the expected rate of return on investment spending is less than the market rate of interest? Or is it the other way around (market rate less than expected rate of return)?

Answer:
Well the thing is, the expected rate of return on investment is the expected rate in the future, not at the moment. Also, you can only know (obviously) the expected rate in the future, you cannot know what the rate will actually be.

So in your scenario, a company cannot know if the expected rate is higher or lower than what the real rate will be. If the company does invest and the real rate of return happens to be higher than the expected rate, then their investment will increase in value. Likewise, if the expected rate of return turns out to be higher than the real rate of return, the value of a company's investment goes down.

A bit confusing to explain, but hopefully that helped a bit.

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