Interest rates and the cost of money influence most personal and corporate capital budgeting factors.

You are the CFO of a company. There is new robotic equipment you want to buy. Your net present value (NPV) study shows that the new equipment will add new free cash flows to the company above the discount rate used in your NPV study. However, you have noticed that the market i ndicates that the cost of capital is expected to drop in the future.

• Would you, as the CFO, finance your projects as soon as possible if the cost of capital was expected to drop? Please explain.
• What are the opportunity costs you must consider in this decision?
• More importantly, where do you find the information to analyze expected changes in interest rates?
• What other information does a drop in interest rates signal regarding the economy?