Peter Has a Business Opportunity That Requires Him to Invest

question 27

Multiple Choice

Peter has a business opportunity that requires him to invest $10,000 today,and receive $12,000 in one year.He can either use $10,000 that he already has for this investment or borrow the money from his bank at an interest rate of 10%.However,the $10,000 he has right now is needed for urgent repairs to his home,repairs that will cost at least $15,000 if he delays them for a year.Should Peter undertake the investment?

• A)No,since the net present value (NPV)of the investment,should he take it,is less than the net present value (NPV)of the home repairs if he delays them for one year.
• B)Yes,since he can borrow the $10,000 from a bank,repair his home,invest $10,000 in the business opportunity,which,since it has a NPV > 0 will mean he will still come out ahead after repaying the loan.
• C)Yes,since the net present value (NPV)of the investment is greater than zero he can invest the $10,000 in the business opportunity,and then next year use this money plus the benefit from this money to make the necessary home repairs.
• D)Yes,since the net present value (NPV)of the investment,should he take it,is greater than the net present value (NPV)of the home repairs if he delays them for one year.
• E)No,since the net present value (NPV)of both the investment and the repairs are the same.

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Definitions:

Conciliatory

Showing willingness to reconcile or make concessions to reach a peaceful resolution.

Aggression

Behavior aimed at causing harm or pain to others, which can be physical or verbal.

Sympathetic Arousal

Activation of the sympathetic nervous system, leading to physiological changes such as increased heart rate and blood pressure, often in response to stress or threat.

Fight or Flight

A physiological reaction that occurs in response to a perceived harmful event, attack, or threat to survival.