Consider the following investment cash flows: Year Cash Flow 0 -$1,000 1 $250 2 $400 3 $500 4 $600 5 $600
a. What is the return expected on this investment measured in dollar terms if the opportunity cost rate is 10 percent?
b. Provide an explanation, in economic terms, of your answer.
c. What is the return on this investment measured in percentage terms?
d. Should this investment be made? Explain your answer.