An electricity company is considering damming a small river to generate electricity at a cost of $250,000 and a profit of $300,000 in 5 years. The current market rate of interest is 3 percent. Should the company make the investment?

Question

Quizplus · Accepted Answer

The present value of the profit ($300,000 in 5 years) discounted at a 3% interest rate is greater than the immediate cost of $250,000, making the investment financially viable.

An Electricity Company Is Considering Damming a Small River to Generate