Question

(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?​

Answer 1

The book seller should invest in the extra space.

Step-by-step explanation:

As per the given data:

rent for the additional space given is $300 per year, the additional profit that will be pulled by adding on the space = $4000 per year, the current rate of interest given is = 12%

In order to calculate about the decision, the present values needs to be calculated first

The present value of the investment = (- $ 3000 plus $ 4000) by 1.121

The present value of the investment = $ 571.43

The present value of the investment is positve, hence the book seller should invest in the extra space.