Dobson Construction has an investment project that would cost $150,000 today and yield a one-time payoff of $167,000 in three years.Among the following interest rates,which is the highest one at which Dobson would find this project profitable?
A)5 percent
B)4 percent
C)3 percent
D)2 percent

Question

Quizplus · Accepted Answer

To determine the highest interest rate at which the project is profitable, calculate the present value of the $167,000 payoff using each interest rate. The project is profitable if the present value is greater than the $150,000 cost. At 3 percent, the present value is approximately $157,000, which is greater than $150,000, making it the highest rate for profitability.

Dobson Construction Has an Investment Project That Would Cost $150,000