A firm learns of an investment opportunity that will increase future revenue, two years from now, by $121 million. The marginal resource cost of the physical capital today is $100 million dollars. Should this firm make this investment at an interest rate of 10% Why? Using the information from this scenario a . What is the discounted percentage for this investment? What information does it provide? b . Other things being equal, could this investment be made at a higher interest rate? Lower? Why? c.Other things being equal, could this investment be made for a longer term? Shorter term ? Why?

A firm learns of an investment opportunity that will increase future revenue, two years from now, by $121 million. The marginal resource cost of the physical capital today is $100 million dollars. Should this firm make this investment at an interest rate of 10% Why? Using the information from this scenario a . What is the discounted percentage for this investment? What information does it provide? b . Other things being equal, could this investment be made at a higher interest rate? Lower? Why? c.Other things being equal, could this investment be made for a longer term? Shorter term ? Why?

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter2: Fundamental Economic Concepts

Section: Chapter Questions

Problem 4E

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