A firm is considering building a new facility for $5 million that will generate a before tax value of
$5.5 million in output. The firm must borrow at an interest rate of 11 percent in order to finance the project. Net income is taxed at 30 percent. The loan will be paid back in one year. Should the firm make the investment in the new facility? Suppose that the interest rate is instead 6 percent. Does this change anything?

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The Answer of A firm is considering building a new facility for $5 million that will generate a before tax value of
$5.5 million in output. The firm must borrow at an interest rate of 11 percent in order to finance the project. Net income is taxed at 30 percent. The loan will be paid back in one year. Should the firm make the investment in the new facility? Suppose that the interest rate is instead 6 percent. Does this change anything?

A Firm Is Considering Building a New Facility for $5