A manufacturing company is thinking about building a new factory. The new factory, if built, will give a return of $200 million in 4 years, and it would cost $125 million today to build. The company will decide to build the factory if the interest rate is

The company will decide to build the factory if the interest rate is 12.47 %.

Explanation:

The required interest rate r, can be determined as follows ;

PV = - $125 million

n = 4

Pmt = $0

P/yr = 1

FV = $200 million

r = ?

Using a Financial Calculator, the required interest rate r, is 12.4683 or 12.47 % (2 decimal places)

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