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An entrepreneur is faced with the following investment opportunity: For an inve
An entrepreneur is faced with the following investment opportunity: For an inve
游客
2025-06-21
26
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问题
An entrepreneur is faced with the following investment opportunity: For an investment of $100 today and a further investment of $150 next year, he can earn a return of $300 two years from now. Should he undertake this investment if the interest rate is 5 percent? If the interest rate is 15 percent? Explain.
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答案
At5 percent, the NPV=-$100-$150/1.05+$300/(1.05)2=$29.25. The investment is worthwhile.
At 15 percent, the NPV=-$100-$150/1.15+$300/(1.15)2=-$3.59, so the investment is not worthwhile.
Since file benefits are only received in the future, a higher discount lowers the present value of these benefits. Hence, the investment becomes less profitable.
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