A firm is considering an investment that will cost $2 million today and $2 million a year from now. It will generate revenues of $1 million a year for five years, beginning two years from now. If the interest rate is 10 percent, the firm should
A. not make the investment because the present value of the net revenues is less than $4 million.
B. not make the investment because the present value of the net revenues is less than the present value of the investment spending.
C. make the investment because the project will generate a net profit of $1 million.
D. make the investment because the present value of the net revenues is greater than the present value of the investment.
Answer: B
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Indicate whether the statement is true or false
When demand for money is unstable,
A) a constant interest-rate policy will be superior to a policy of constant money-supply growth. B) constant money-supply growth will be superior to a countercyclical monetary policy. C) procyclical monetary policy would be needed to keep the interest rate constant. D) Both A and C are correct.
When a unit tax is placed on demanders ____
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A local government currently has a tax base of $10 billion and a tax rate of 10 percent. If the tax rate is increased to 12 percent, the tax base becomes $8.5 billion. If the goal is to maximize tax revenues the tax rate should be
A) raised above 12 percent. B) kept at 10 percent. C) raised to 12 percent. D) abolished.