Dobson Construction has an investment project that would cost $150,000 today and yield a one-time payoff of $167,000 in three years. Among the following interest rates, which is the highest one at which Dobson would find this project profitable?a. 7%

b. 6%

c.5%

d. 4%

Dobson will be profitable at an interest rate ≤ 4% hence the closest answer is  ( D )  Note : the investment can be profitable when the (Pv) is greater than the cost of investment

Explanation:

cost of investment project = $150000

yield time = 3 years

yield value = $167000

at what interest rate will this be profitable for Dobson construction APPLYING this equation

Pv = fv * ( 1 + i ) ^ (-n)

fv = project yield

i = interest rate

n = time ( number of years ) = 3

Pv = present value

considering all given interest rates

for i = 7% = 0.07

Pv = 167000 * ( 1.07 )^( - 3 )

Pv = 167000 * 0.8163 = $136322

for i = 6% = 0.06

Pv = 167000 * ( 1.06 )^(-3)

Pv = 167000 * 0.8396 = $140213

for i = 5% = 0.05

Pv = 167000 * (1.05)^(-3)

Pv = 167000 * 0.8638 = $144254

for i = 4% = 0.04

Pv = 167000 * (1.04)^(-3)

Pv = 167000 * 0.8890 = $148463

Note : the investment can be profitable when the (Pv) is greater than the cost of investment

the assumption the narrator makes in this excerpt is that the messages he heards were going to hurt the narrator's mom; the narrator just springs in to action. the narrator doesn't specify in this excerpt why he believes that the messages present a problem that requires protection.