First yr followed by cash payment of end of the second year

Reference no: EM1332373

Range of opportunity costs of capital

The Titanic Shipbuilding Company has a noncancelable contract to build a small cargo vessel. Construction involves a cash outlay of $250,000 at the end of each of the next 2 years. At the end of the third year the company will receive payment of $650,000. The company can speed up construction by working an extra shift. In this case there will be a cash outlay of $550,000 at the end of the first year followed by a cash payment of $650,000 at the end of the second year.

Show the (approximate) range of opportunity costs of capital at which the company should work the extra shift

Reference no: EM1332373

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