Fred\'s Fish House is contemplating an investment of $50,000 in new shrimp boats

Question

Fred's Fish House is contemplating an investment of $50,000 in new shrimp boats and deep fryers. Management of this company predict a 11.2 percent annual return on this investment. The current market rate of interest is 11.6 percent. Fred's Fish House will not make the investment since the cost is less than the expected return. make the investment since the cost is less than the expected return. not make the investment since the cost is greater than the expected return. make the investment since the cost is greater than the expected return. At which of the market rates of interest below would Fred's Fish House be inclined to make the investment? 3%. 2%. 3.5%. at any of these interest rates listed.

Explanation / Answer

1. C, not make the investment since cost is greater than expected return

cost for 1 year = .116*50,000 = $5800

expected return for 1 year = .112*50,000 = $5600

exp return > cost

2. D) at any of these interest rate listed

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