Exhibit 13.2

-Refer to Exhibit 13.2,which shows the expected rate of return on investment undertaken by a firm.What is the firm's investment in a project if the market rate of interest is 8 percent?

Question

Exhibit 13.2
 
-Refer to Exhibit 13.2,which shows the expected rate of return on investment undertaken by a firm.What is the firm's investment in a project if the market rate of interest is 8 percent?

Quizplus · Accepted Answer

The firm will invest in projects where the expected rate of return is greater than or equal to the market rate of interest. If the market rate is 8%, the firm will invest in projects up to the point where the expected rate of return equals 8%. Assuming Exhibit 13.2 shows a declining rate of return with increasing investment, $15,000 is likely the investment level where the expected rate of return equals 8%.

Exhibit 13.2 -Refer to Exhibit 13.2,which Shows the Expected Rate of Return