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.)