projections are announced for Wintertown that show a
booming economy for the next 5–7 years. How will this
affect the future stream of MRPs and the purchase
decision?
6. The diagram below shows an individual firm’s investment
demand curve. The market interest rate is.
a. Explain why the firm’s investment demand curve is
downward sloping.
b. Suppose the firm now expects the market for its product
to be especially good in the future. Explain what happens
to its investment demand curve.
c. Now suppose some technical problem leads to a
reduction in the future stream of MRPs produced by
capital. How does this affect the firm’s investment
demand curve?
7. How would you go about evaluating the present value of each of
the following?
i 0