#4 Fred fish house is contemplating an investment of $2000,000 in new shrimp boa

Question

#4

Fred fish house is contemplating an investment of $2000,000 in new shrimp boats and deep fryers. Management of this company predicts a 4.4 percent annual return on this investment. The current market rate of interest is 10.5 percent. Freds Fish House will:

A) make the investment since the cost is greater than the expected return

B) not make the investment since the cost is greater than the expected return

C) not make the investment since the cost is less than the expected return

D) make the investment since the cost is less than the expected return

At which of the market rates of interest below would Fred's Fish House be inclined to make the investment?

A) 3.5%

B) 3%

C) 2%

D) at any of these interest rates listed

Explanation / Answer

C) not make the investment since the cost is less than the expected return

D) at any of these interest rates listed

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