An indoor vegetable producer is considering borrowing £120,000 to install new growing equipment. After the investment was first planned, the lender cut its annual interest rate. At the same time, the producer expected retailers to order fewer vegetables.
| Original forecast | Revised forecast | |
|---|---|---|
| Annual interest rate on the loan | 7% | 4% |
| Expected annual return before interest costs | £10,800 | £3,600 |
Calculate the expected annual return after interest costs using the revised forecast. Show your working.
Explain whether the producer is likely to go ahead with the investment. Use the original and revised forecasts in your answer.
82 exam-style questions on OCR GCSE Economics 2.8 The role of money and financial markets, covering 2.8.1 Money as a medium of exchange, 2.8.2 Role of the financial sector, 2.8.3 Importance of the financial sector, 2.8.4 Interest rates and saving, borrowing, investment, and 2.8.5 Effect of interest rate changes. Each one has a worked solution and a mark scheme showing where the marks go.