Everyday Plastics Corporation wants to invest in new machinery that will allow the company to be more
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Everyday Plastics Corporation wants to invest in new machinery that will allow the company to be more responsive to changes in customer demand. The company has an excellent credit rating and can borrow funds at the prevailing prime interest rate. To be on the "safe" side, however, the company has analyzed the potential investment using a discount rate that is \(3 \%\) above the prevailing prime interest rate. Why would the company want to increase the discount rate to be on the safe side, and what is the likely effect of using a rate higher than the available borrowing rate on the company's analysis of the investment decision?
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Related Book For 
Managerial Accounting Information For Decisions
ISBN: 9780324222432
4th Edition
Authors: Thomas L. Albright , Robert W. Ingram, John S. Hill
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