Suppose a firm anticipates that a particular R&D expenditure of $100 million will result in a new product and thus create a one-time added profit of $108 million a year later. The firm will
A) undertake the R&D expenditure if its interest-rate cost of borrowing is 12 percent.
B) undertake the R&D expenditure if its interest-rate cost of borrowing is 10 percent.
C) not undertake the R&D expenditure if its interest-rate cost of borrowing is 9 percent.
D) not undertake the R&D expenditure if its interest-rate cost of borrowing is 7 percent.

Question

Suppose a firm anticipates that a particular R&D expenditure of $100 million will result in a new product and thus create a one-time added profit of $108 million a year later. The firm will
A)    undertake the R&D expenditure if its interest-rate cost of borrowing is 12 percent.	
B)    undertake the R&D expenditure if its interest-rate cost of borrowing is 10 percent.
C)    not undertake the R&D expenditure if its interest-rate cost of borrowing is 9 percent.
D)    not undertake the R&D expenditure if its interest-rate cost of borrowing is 7 percent.

Quizplus · Accepted Answer

The Answer of Suppose a firm anticipates that a particular R&D expenditure of $100 million will result in a new product and thus create a one-time added profit of $108 million a year later. The firm will
A)    undertake the R&D expenditure if its interest-rate cost of borrowing is 12 percent.	
B)    undertake the R&D expenditure if its interest-rate cost of borrowing is 10 percent.
C)    not undertake the R&D expenditure if its interest-rate cost of borrowing is 9 percent.
D)    not undertake the R&D expenditure if its interest-rate cost of borrowing is 7 percent.

Suppose a Firm Anticipates That a Particular R&D Expenditure of $100