A company has an investment project that would cost$10 million today and yield a payoff of $15 million in4 years.a. Should the firm undertake the project if theinterest rate is 11 percent? 10 percent? 9 percent?8 percent?b. Can you figure out the exact interest rate atwhich the firm would be indifferent betweenundertaking and forgoing the project? (Thisinterest rate is called the project’s internal rate ofreturn.)
A company has an investment project that would cost$10 million today and yield a payoff of $15 million in4 years.a. Should the firm undertake the project if theinterest rate is 11 percent? 10 percent? 9 percent?8 percent?b. Can you figure out the exact interest rate atwhich the firm would be indifferent betweenundertaking and forgoing the project? (Thisinterest rate is called the project’s internal rate ofreturn.)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
A company has an investment project that would cost
$10 million today and yield a payoff of $15 million in
4 years.
a. Should the firm undertake the project if the
interest rate is 11 percent? 10 percent? 9 percent?
8 percent?
b. Can you figure out the exact interest rate at
which the firm would be indifferent between
undertaking and forgoing the project? (This
interest rate is called the project’s internal rate of
return.)
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