Suppose an investment project is projected to provide $200 000 in revenues.The investment will cost the company $180 000.Given this information,one should commit to the project:

Question

Quizplus · Accepted Answer

The decision to commit to an investment project depends on the expected return on investment, which is calculated as the difference between the expected revenues and the cost of the project, discounted by the interest rate. In this case, the expected return on investment is $20,000 ($200,000 - $180,000). Therefore, if the interest rate is less than or equal to 11%, the project would be profitable, as the discounted value of the return on investment would be greater than the cost of the project. However, if the interest rate is higher than 11%, the discounted value of the return on investment would be lower than the cost of the project, making it unprofitable. Thus, the best choice is B.

Suppose an Investment Project Is Projected to Provide $200 000