A company planning to borrow $10.5 million for a plant expansion is not sure what the interest

Question:

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?

Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...