The attached article Equipment Expenditures since 1995 The B

The attached article, Equipment Expenditures since 1995: The Boom and Bust, adresses economic considerations related to investment by firm. once you read the article, answer the following questions:
1. Did the author\'s research show that the recent decline in expenditure was related solely to reduction in technology expenditures?
2. What three factors does the author identify as driving investment by businesses?
3. How will the level of stock prices affect a firm\'s investment?
4. Did the author conclude that the recent decline in stock prices was the driving force in investment?

Solution

1-it is true that expenditures for technology and software have substantially declined in recent periods, other traditional areas of investment expenditures have declined by nearly the same magnitude in recent quarters

2- Onefactor is GDP growth, whose role is straightforward

A second factor likely to drive investment is the rental

cost of capital—that is, the cost of purchasing and holding investement good

A third factor thought to influence investment is the market value of firms relative to their underlying capital assets

3-When the stock market values firms and their future prospects highly, investments in physical assets such as capital goods are more profitable for firms than financial investments such as stock repurchases and corporate takeovers

Consequently, holding all else constant, higher equity values should lead to greater investment in equipment and softwar