Consider the following investment cash flows:
|
Year
|
Cash Flow
|
|
0
|
($1000)
|
|
1
|
250
|
|
2
|
400
|
|
3
|
500
|
|
4
|
600
|
|
5
|
600
|
a. What is the return expected on this investmentmeasured in dollar terms if the opportunity cost rate is 10 percent?
b. Provide an explanation, in economics terms, of your answer.
c. What is the return on this investment measured in percentage terms?
d. Should this investment be made? Explain your answer.