Tom's Donuts can invest in a new espresso machine that costs $300 and will yield expected profits of $200 each year for two years. At lower interest rates, the present discounted value of profits from the investment

Question

Quizplus · Accepted Answer

At lower interest rates, the present discounted value of future profits increases because the discount factor (which is inversely related to the interest rate) is larger, making future profits worth more in today's dollars.

Tom's Donuts Can Invest in a New Espresso Machine That