Consider the following four investment projects: Consider each of the following questions independently:
a) Suppose that the firm has only $3,500 available at period 0. Neither additional budgets nor borrowing are
allowed in any future budget period. However, you can lend out any left funds (or available funds) at 10%
interest per period. If you want to maximize the amount of cash available at period 3, which project(s) would
you select? What is the total amount of cash available at the end of period 3? No partial projects are allowed.
b) Suppose in (a) that, at period 0, you are allowed to borrow $500 at an interest rate of 13%. The loan has to be
repaid at the end of year 1. Which project(s) would you select to maximize the total amount of cash available at
period 3?

Question

Consider the following four investment projects:  Consider each of the following questions independently:
a) Suppose that the firm has only $3,500 available at period 0. Neither additional budgets nor borrowing are
allowed in any future budget period. However, you can lend out any left funds (or available funds) at 10%
interest per period. If you want to maximize the amount of cash available at period 3, which project(s) would
you select? What is the total amount of cash available at the end of period 3? No partial projects are allowed.
b) Suppose in (a) that, at period 0, you are allowed to borrow $500 at an interest rate of 13%. The loan has to be
repaid at the end of year 1. Which project(s) would you select to maximize the total amount of cash available at
period 3?

Quizplus · Accepted Answer

The Answer is

Consider the Following Four Investment Projects: Consider Each of the Following