Dobson Construction has an investment project that would cost $150,000 today and yield a one-time payoff of $167,000 in two years.Among the following interest rates,which is the highest one at which Dobson would find this project profitable?
A) 7%
B) 6%
C) 5%
D) 4%

Question

Quizplus · Accepted Answer

The project is profitable if the present value of the payoff is greater than the initial investment. At 5%, the present value of $167,000 in two years is $151,360.54, which is greater than $150,000, making it the highest rate at which the project is still profitable.

Dobson Construction Has an Investment Project That Would Cost $150,000