A company planning to borrow $9.0 million for a plant expansion is not sure what the interest rate will be when it applies for the loan. The rate could be as low as 8% per year or as high as 10.2% per year. The company will move forward with the project only if the annual worth of the expansion is below $5.2 million. The maintenance and operating cost is fixed at $3.3 million per year and the salvage will be $3.4 million. Use a 5-year study period.
What is the most optimistic value for the annual cost?
$
What is the most pessimistic value for the annual cost?
$
Is the decision sensitive to interest rate?
-Yes
-No