Peter Has a Business Opportunity That Requires Him to Invest

question 83

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. What is the best alternative for Peter out of the following choices?

• 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.

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Definitions:

Population

A group of organisms of the same species who live in a specific location and breed with one another more often than they breed with members of other populations.

Trophic Category

The classification of organisms based on their feeding position in the ecosystem, ranging from producers to various levels of consumers.

Carnivore

An organism that primarily eats other animals or the flesh of animals as its main food source.

Salmon

A species of fish known for their anadromous life cycle, migrating from ocean habitats to freshwater to spawn.