KEY TAKEAWAYS The net present value (NPV) of an investment project is equal to the present value of its expected revenues minus the present value of its expected costs Firms will want to undertake those investments for which the NPV is greater than or equal to zero The demand curve for capital shows that firms demand a greater quantity of capital at lower interest rates Among the forces that can shift the demand curve for capital are changes in expectations, changes in technology, changes in the demands for goods and services, changes in relative factor prices, and changes in tax policy The interest rate is determined in the market for loanable funds The demand curve for loanable funds has a negative slope; the supply curve has a positive slope Changes in the demand for capital affect the loanable funds market, and changes in the loanable funds market affect the quantity of capital demanded TRY IT! Suppose that baby boomers become increasingly concerned about whether or not the government will really have the funds to make Social Security payments to them over their retirement years As a result, they boost saving now How would their decisions affect the market for loanable funds and the demand curve for capital? Case in Point: The Net Present Value of an MBA An investment in human capital differs little from an investment in capital—one acquires an asset that will produce additional income over Attributed to Libby Rittenberg and Timothy Tregarthen Saylor URL: http://www.saylor.org/books/ Saylor.org 707