Final answer:
Investors should consider risk, liquidity, tax implications, time horizon, diversification, opportunity cost, and portfolio impact, beyond just the expected rate of return and MARR while making investment decisions.
Step-by-step explanation:
An investor considering a project with an expected rate of return lower than their Minimum Acceptable Rate of Return (MARR) of 20% should indeed consider factors beyond these rates before making an investment decision. While the expected rate of return indicates average future returns, it is crucial to assess the risk associated with the investment, which can alter the actual rate of return. Types of risk include default risk, the chance that a borrower may not fulfill their repayment obligations, and interest rate risk, the hazard of a subsequent rise in market rates after binding into a lower yield investment. A high-risk investment could have actual returns that deviate significantly from the expected returns, which poses an additional layer of consideration for investors.
Furthermore, the investor should consider liquidity, tax implications, the time horizon of investment, diversification, and the overall impact on their investment portfolio. It's also pertinent to contemplate the opportunity cost, which is the rate of return on other available financial opportunities. By considering the totality of these factors, an investor can make a more informed decision beyond the simplistic comparison of MARR and the expected rate of return.