# Investment between firms

**Question description**

3. A firm has the choice of the following investments:

Investment A: costs $5000 today, pays a total of $4000 next year and $1700 the second year. No value beyond that.

Investment B: costs $10000 today, pays $2000 next year and $9800 the second year. No value beyond that

a) Show any calculations used to determine whether the firm will invest in either, neither, or both of these projects if the interest rate is 10%. (1 point)

b) Repeat part (a) with an interest rate is 5%. (1 point)

c) Someone claims that the rate of return of project B is 9%. Explain whether or not you can refute this claim base only on the data from parts (a) and (b). Then set up (but do not solve) and equation that would give us an exact answer for the rate of return of the project. (1 point)

## Tutor Answer

## Review from our student for this Answer

Brown University

1271 Tutors

California Institute of Technology

2131 Tutors

Carnegie Mellon University

982 Tutors

Columbia University

1256 Tutors

Dartmouth University

2113 Tutors

Emory University

2279 Tutors

Harvard University

599 Tutors

Massachusetts Institute of Technology

2319 Tutors

New York University

1645 Tutors

Notre Dam University

1911 Tutors

Oklahoma University

2122 Tutors

Pennsylvania State University

932 Tutors

Princeton University

1211 Tutors

Stanford University

983 Tutors

University of California

1282 Tutors

Oxford University

123 Tutors

Yale University

2325 Tutors