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  3. An entrepreneur is faced with the following investment opportunity: For an investment of ＄100 today and a further investment of

An entrepreneur is faced with the following investment opportunity: For an investment of ＄100 today and a further investment of

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问题  An entrepreneur is faced with the following investment opportunity: For an investment of ＄100 today and a further investment of ＄150 next year, he can earn a return of ＄300 two years from now. Should he undertake this investment if the interest rate is 5 percent? If the interest rate is 15 percent? Explain.
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答案At5 percent, the NPV=-＄100-＄150/1.05+＄300/(1.05)2=＄29.25. The investment is worthwhile. At 15 percent, the NPV=-＄100-＄150/1.15+＄300/(1.15)2=-＄3.59, so the investment is not worthwhile. Since file benefits are only received in the future, a higher discount lowers the present value of these benefits. Hence, the investment becomes less profitable.
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中级（经济学）

原金融专业英语（FECT）

金融英语（FECT）

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