Use the following to answer questions 6-7: Table: Investment Projects Project Co

Question

Use the following to answer questions 6-7: Table: Investment Projects Project Cost of invest ment 500 300 1,000 200 2,000 1.500 1.200 800 Rate of return on investment 20% 18 16 14 12 10 6. (Table: Investment Projects) According to the table Investment Projects, if the market interest rate is 13%, the amount of planned investment spending is: A) $1,000. B) $2,000. C) $200. D) $800 7. (Table: Investment Projects) According to the table Investment Projects, if the mark interest rate is 15%, the last project undertaken is: A) G C) H. D) F.

Explanation / Answer

A project is undertaken if its rate of return is higher than market interest rate.

(6) (B)

When market rate = 13%, projects F, G, H & I should be undertaken.

Total investment ($) = 500 + 300 + 1,000 + 200 = 2,000

(7) (C)

When market rate is 15%, projects F, G & H are undertaken in that order.

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