Construction Management Practice Exam 2025 – 400 Free Practice Questions to Pass the Exam

When interest rates increase, the present value of future income decreases, making that income less valuable in comparison to upfront construction costs. This is primarily due to the time value of money concept, which asserts that a dollar received today is worth more than a dollar received in the future because of its potential earning capacity.

Higher interest rates mean that the cost of borrowing increases. Consequently, any future income generated from an investment needs to be discounted back to its present value at a higher rate. This results in a lower present value for expected income, which in turn makes future income appear less valuable when assessed against the initial construction costs.

This concept is critical in construction management and financial analysis because it impacts project feasibility and investment decisions. It highlights the importance of considering interest rates in the financial planning stages of construction projects.