An electricity company is considering damming a small river to generate electricity at a cost of $160,000 and a profit of $200,000 in 5 years. The current market rate of interest is 5 percent. Should the company make the investment?

Question

Quizplus · Accepted Answer

The present value of the profit ($200,000) discounted at 5% over 5 years is less than the initial cost of $160,000, making the investment unwise.

An Electricity Company Is Considering Damming a Small River to Generate