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Calculate the exact cutoff for the interest rate

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Reference no: EM132492195

A company has an investment project that would cost $10 million today and yield a payoff of $15 million 4 years from now.

a. Using present value, should the firm undertake the project if the interest rate is 11 percent? What about if the interest rate is 8 percent? Does change in the interest rate change your answer? If so, explain intuitively why. Show all present value calculations below.

b. Calculate the exact cutoff for the interest rate between the firm undertaking this investment project and not undertaking this project.

Reference no: EM132492195

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