*ANSWER IN DETAIL*

Since the beginning of the year 2020, the COVID-19 pandemic, with the emergence of new

variants of the virus, looks set to become part of our everyday life. While many businesses have

been negatively affected, there have also been some that have benefitted, such as the producers of

face masks and antigen tests, to the extent that they are unable to meet demand. As a result, many

companies involved in the production of these products are looking for new investors to expand

the capacity of their facilities.

One such company intends to acquire new assets worth 2.2 million euros, which, according to

their calculations, will generate a total of 180,000 euros in the first year, and with a growth rate of

4% per year forever.

a. If the company requires a rate of return of 11%, should the company invest in expanding

its capacities? Explain your decision.

b. Despite their expectations, the company is not sure that they can continue to grow at 4%

per year. What rate of growth would they need to achieve to reach the required 11% rate of

return?