You are considering a risk-free investment that costs
$7,000
and pays
$8,500
in one year. You can either pay all cash for the investment or you can borrow half and pay cash for the other half. If you borrow
$3,500
, you will be required to pay back
$3,710
in one year. The risk-free rate is
6%
. What is the project's NPV? Is the NPV affected if you borrow some of the funds?

Question

You are considering a risk-free investment that costs

$7,000

and pays

$8,500

in one year. You can either pay all cash for the investment or you can borrow half and pay cash for the other half. If you borrow

$3,500

, you will be required to pay back

$3,710

in one year. The risk-free rate is

6%

. What is the project's NPV? Is the NPV affected if you borrow some of the funds?

Accepted Answer

Expert Answer to -   You are considering a risk-free investment that costs $7,000 and pays $8,500 in one year. You can

Answer

Solution for -   You are considering a risk-free investment that costs $7,000 and pays $8,500 in one year. You can

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(Solved): You are considering a risk-free investment that costs $7,000 and pays $8,500 in one year. You can ...