Hua Xing runs a lawn care service. Buying an additional riding lawn mower will cost $3,000 but would allow her firm to earn $1,000 of additional revenue each year for the next four years. She expects marginal efficiency of capital to be at least 10%. Which statement is an accurate description of this investment opportunity? a) Hua Xing should make the investment because turning $3,000 into $4,000 provides a rate of return of 33%. b) Hua Xing should not make the investment because it has a negative net present value. c) Hua Xing should not make the investment because it provides only a 5.16% return on investment. d) Hua Xing should make the investment because the internal rate of return exceeds 10%
Hua Xing runs a lawn care service. Buying an additional riding lawn mower will cost $3,000 but would allow her firm to earn $1,000 of additional revenue each year for the next four years. She expects marginal efficiency of capital to be at least 10%. Which statement is an accurate description of this investment opportunity? a) Hua Xing should make the investment because turning $3,000 into $4,000 provides a rate of return of 33%. b) Hua Xing should not make the investment because it has a negative net present value. c) Hua Xing should not make the investment because it provides only a 5.16% return on investment. d) Hua Xing should make the investment because the internal rate of return exceeds 10%
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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