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Question
A firm is considering an investment that will cost $2 million today and $2 million a year from now. It will generate revenues of $1 million a year for five years, beginning two years from now. If the interest rate is 10 percent, the firm should
A) not make the investment because the present value of the net revenues is less than the present value of the investment spending.
B) not make the investment because the present value of the net revenues is less than $4 million.
C) make the investment because the present value of the net revenues is greater than the present value of the investment.
D) make the investment because the project will generate a net profit of $1 million.
Answer
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