Should spacely sprockets invest in the new sprocket factory

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Spacely Sprockets is considering investing in a new sprocket factory. A new sprocket factory requires an immediate payment $200 million. However, at the end of 20 years the sprocket factory will yield $600 million.

Part 1: Assume the prevailing interest rate is 5%. Should Spacely Sprockets invest in the new sprocket factory? Show your work and explain your answer.

Part 2: Assume the prevailing interest rate is 7%. Should Spacely Sprockets invest in the new sprocket factory? Show your work and explain your answer.

Reference no: EM132288588

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