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A company has an investment project that will cost $2 million today and yield a payoff of $3 million in 5 years. If the interest rate is 7%, should the firm undertake the project? Show evidence to support your answer.
On May 21, 2024
With a 7% interest rate, the present value of the $3 million payoff is $2,138,958.54. Because the present value of the payoff is higher than the initial investment, the firm should undertake the project.