A company has been invited to invest $1 million in a partnership and receive a guaranteed total of..
- May 25, 2021/ Finance
A company has been invited to invest invest $1 million million in a partnership and receive a guaranteed total of $2.5 mil-lion after 4 years. By corporate policy, the MARR is always established at 4% above the real cost of capital. The real interest rate paid on capital is currently 10% per year and the inflation rate during the 4-year period is expected to average 3% per year. (a) Is the investment economically justified? (b) At what real interest rate on capital will the decision made above change?