The Ampex Co. manufactures plastic fixtures for residential bathrooms. Currently, it has an opportunity to invest $1,000,000 in the equipment needed to produce other plastic fixtures for kitchen use. If the company decides to sell kitchen fixtures, it has reason to believe that it can generate the following profit stream during a six-year life cycle for kitchen fixtures.
End of Year Profit
1 $10,000
2 100,000
3 500,000
4 600,000
5 400,000
6 200,000
At the end of six years, the company can sell the capital used to make kitchen fixtures for $50,000. If the interest rate on money available to Ampex is 11% per year, should it invest in kitchen fixtures? Does it matter if the 11% per year is in nominal or real terms? Explain.

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The Answer of The Ampex Co. manufactures plastic fixtures for residential bathrooms. Currently, it has an opportunity to invest $1,000,000 in the equipment needed to produce other plastic fixtures for kitchen use. If the company decides to sell kitchen fixtures, it has reason to believe that it can generate the following profit stream during a six-year life cycle for kitchen fixtures.
End of Year Profit
1 $10,000
2 100,000
3 500,000
4 600,000
5 400,000
6 200,000
At the end of six years, the company can sell the capital used to make kitchen fixtures for $50,000. If the interest rate on money available to Ampex is 11% per year, should it invest in kitchen fixtures? Does it matter if the 11% per year is in nominal or real terms? Explain.