Answer:
Kindly see explanation
Explanation:
Given the following:
Initial investment = $8,000,000
Future value (FV) = $10,000,000
PERIOD (t) = 5 Years
To know if the form should undertake the project, the present value(PV) at each interest rate should be calculated ;
A.) Interest rate (r) = 7% = 0.07
PV = FV / (1 + r)^t
PV = 10,000,000 / (1 + 0.07)^5
PV = 10,000,000 / 1.07^5
PV = 10,000,000 / 1.4025517307
PV = $7,129,861.79483668
Should not be undertaken, PV is less than initial investment.
B.) Interest rate (r) = 6% = 0.06
PV = FV / (1 + r)^t
PV = 10,000,000 / (1 + 0.06)^5
PV = 10,000,000 / 1.06^5
PV = 10,000,000 / 1.3382255776
PV = $7,472,581.72866057
Should not be undertaken, PV is less than initial investment.
C.) Interest rate (r) = 5% = 0.05
PV = FV / (1 + r)^t
PV = 10,000,000 / (1 + 0.05)^5
PV = 10,000,000 / 1.05^5
PV = 10,000,000 / 1.2762815625
PV = $7,835,261.66468459
Should not be undertaken, PV is less than initial investment
D.)Interest rate (r) = 4% = 0.04
PV = FV / (1 + r)^t
PV = 10,000,000 / (1 + 0.04)^5
PV = 10,000,000 / 1.04^5
PV = 10,000,000 / 1.2166529024
PV = $8,219,271.06759351
Should be undertaken, PV is greater than initial investment
