Suppose a factory would be built in one year (year 0) and last only a year (year 1). The construction cost in year 0 would be $100,000 financed by borrowing and the profit in year 1 would be $120,000.
Should the firm build the factory? Explain why or why not.
Suppose the factory lasts two years instead of one, and the profit is $60,000 in year 1 and$72,000 in year 2. Should it be built? Explain.