Discuss the implications of capital market imperfections

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How would you modify (8.1) to allow the manager's discount factor to be influenced by variations in the real interest rate? There are no borrowing restrictions in this framework. So the choice of investment and thus future capital is not constrained by current profits or retained earnings. We return to this issue later in the chapter when we discuss the implications of capital market imperfections.

Reference no: EM131264029

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