9.2 Company A in country X is considering the investment in a project with the...
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9.2 Company A in country X is considering the investment in a project with the following (estimated) cost and benefit. The project has a life of 3 years and has zero value after the third year. 1 2 3 Period (year) Cost of investment ($ million) Profits ($ million) 0 11.70 2.5 4.5 6.0 (a) Suppose in year O Company A could borrow or lend at an annual interest rate of 4%. Explain clearly with calculation whether Company A will invest in this project. (b) Based on your answer in part (a) explain how an increase in interest rate to 5% will affect Company A's investment decision. (c) There is a concern about the unemployment problem in country X and the lack of investment demand is regarded as one of the major reasons of unemployment. Suppose other firms in country X will be affected in the same way as Company A as described in part (a) and (b) above. Explain how a change in interest rate may help to solve the unemployment
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