Question

If the rate of return on an investment project is _____% and the interest rate is _____%, then the firm should undertake the project if profit is the only motive. Please choose the correct answer from the following choices, and then select the submit answer button. Answer choices 6; 6 8; 5 1; 2 5; 8

Answer 1

The answer is: 8; 5

The rate of return equals 8% and the interest rate is 5% (discount rate)

Explanation:

To decide whether or not one project should be taken the rate of return of the project's cash flows should be larger than the discount rate (in this case the interest rate). If the discount rate was larger, the present value of the project would be negative, therefore the project should be discarded.