Engineering Economy 7th Edition by Leland Blank ,Anthony Tarquin

Exercise 4

A company planning to borrow $10.5 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 10% per year or as high as 12% per year for a 5-year loan. The company will only move forward with the project if the annual worth of the expansion is below $5.7 million. The M O cost is fixed at $3.1 million per year. The salvage could be $2 million if the interest rate is 10% or $2.5 million if it is 12% per year. Is the decision to move forward with the project sensitive to the interest rate and salvage value estimates