Question

All select are yes or no

Suppose a handbill publisher can buy a new duplicating machine for $2,000 and the duplicator has a 1-year life. The machine is expected to contribute $2,200 to the year's net revenue. Instructions: Round your answer to the nearest whole number. a. What is the expected rate of return? percent b. If the real interest rate at which funds can be borrowed to purchase the machine is 8.00 percent, will the publisher choose to invest in the machine? (Click to select) Will it invest in the machine if the real interest rate is 9.00 percent? (Click to select) If it is 11.00 percent? (Click to select)

Answer 1

Solution:-

(a). Rate of return is calculated as = (expected return - initial cost) / initial cost*100.

= ($2200 - 2000) / 2000 * 100

= $200 / 2000 * 100

= 0.1 * 100

= 10%

(b). Yes, (interest rate is less than expected rate of return.)

(c). Yes, (interest rate is less than expected rate of return.)

(d). No,  (now interest rate is more than expected rate of return.)