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Cost of capital, i.e., interest payments and cash-flows out, impact the total cash available to invest in capital goods. For example if you borrow $100,000 to purchase a new Pizza oven and it brings in an additional $1000/month of profit but the monthly interest on the loan payment is $1500, then it is a bad capital expenditure with a negative effect on the business. If you borrow the same but bring in $5000 of additional profit per month it is a good investment. The precise calculation of this is about 20 layers more complicated but you get the idea.

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Q: How are capital expenditures affected by the cost of capital?
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