Answer:
No, the mechanic should not make the investment.
Step-by-step explanation:
Opportunity cost of expansion = 8% * $11,000 = $880
Total cost of expansion = Expected cost + Opportunity cost = $11,000 + $880 = $11,880
Net expected profit from expansion = Expected revenue - Total cost of expansion = $12,000 - $11,880 = $120
Rate of return from expansion = $120 / $11,880 = 0.0101, or 1.01%
Interest rate on saving = 8%
Since the rate of return from expansion of 1.01% is less than the 8% interest rate on saving, the mechanic should not make the investment.