The owner of Joe’s Burgers is thinking about building a second fast food restaur

Question

The owner of Joe’s Burgers is thinking about building a second fast food restaurant across town. The second restaurant would cost Joe $1 million to build. The owner, having more than enough money to build the new building, states that she does not need to consider the market rate of interest in deciding whether or not to build the new restaurant because she does not need to borrow the money. Is the owner correct in her statement about not needing to consider the market rate of interest? Please clearly explain your reasoning.

Explanation / Answer

If you are going to build the restuarant with the own money you have, then you dont need to consider the market rate at which the loans are available. Because you are not going to borrow from anybody. Hence the owner of the resturant has rightly taken the decision of not wasting time in considering the present market interest rates. Instead she could concentrate on how fast she could construct the building and improve her business.

The owner has taken a right decision because,

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