To determine whether to accept or reject Investment B, we need to compare the return on Investment B with the return from putting the money in a bank and earning the market interest rate. The correct statement is I, II, IV. Investment B yields a return of $22,000, while putting the money in a bank yields a return of $210,450.
To determine whether to accept or reject Investment B, we need to compare the return on Investment B with the return from putting the money in a bank and earning the market interest rate. The market interest rate is given as 15%.
To calculate the return on Investment B, we subtract the initial investment of $183,000 from the future payoff of $205,000. This gives us a return of $22,000.
The return from putting the money in a bank and earning the market interest rate can be calculated using the formula: Future Value = Present Value * (1 + Interest Rate). Plugging in the values, we get: Future Value = $183,000 * (1 + 0.15) = $210,450.
Comparing the two returns, we can see that Investment B yields a return of $22,000, while putting the money in a bank yields a return of $210,450. Therefore, Statement I is correct. Investment B yields $5,450 less than putting the money in a bank and earning the market interest rate. Therefore, Statement II and IV are incorrect. Additionally, the investment return on Investment B is 12% ($22,000 / $183,000), which is lower than the market interest rate of 15%. Therefore, Statement III is correct. Therefore, the correct answer is d. I and II only.