why do firms invest and borrow
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They use the funds to generate enough profits to more than cover the cost of borrowing. Taking out credit, whether it's a business loan, invoice finance or an overdraft, allows them to invest in more sales, creating more profit.
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Firms should borrow a lot to finance their investment schedules, because interest payable on borrowings is tax deductible. ... When a firm's investment schedule collapses by failing to generate adequate cash to make compulsory interest payments, shareholders may be forced to suffer the costs and delays of liquidation.
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