Macroeconomics

Chapter 10 Assignment

To Invest or Not to Invest?

It is important to understand the criteria for investment decisions. Consider the following data for the Cuppa Coffee Company, which is considering investing in a new high tech coffee roaster. (For simplicity's sake let's assume it's just for one year)

Interest rate in loanable funds market: 7.00%

Projected revenue from project: $100,500

Estimated cost of the project: $93,000

Would it be a rational business decision for the Cuppa Coffee Company to borrow the

funds necessary to invest in the new coffee roaster? Why?