(a) A local bookseller is considering expanding store space to increase his capacity for books. The rent for the additional space would cost $3000 per year. The bookseller predicts that the added space will pull in an additional profit of $4000 per year. The current interest rate is 12%. Should the bookseller invest in the extra space? 

(b) A baker is considering expanding her business by adding an additional oven to her kitchen. The new oven would cost $700. The baker expects the new oven to bring in additional profits of $800. The baker can borrow at a nominal interest rate of 15% and the current inflation rate is 4%. Should she make the investment? 

(c) A mechanic is considering expanding his garage. After a strong year last year, the mechanic is able to finance the expansion from last year's profits. The expansion itself is expected to cost $11,000. The mechanic estimates that the additional garage will bring in revenue totaling $12,000. The mechanic is currently receiving an interest rate of 8% on his saved profits. Should he make the investment?

Answer rating: 100% (QA)

a Yes The additional space would bring a profit of 1000 or an expected rate of return of 333 co... View the full answer