LAX Inc., a transportation company, is debating accepting a new contract. The contract would result in profits of $5,000 per year for the first 3 years and $8,000 for the final two years. The startup costs for the project would be $20,000, and it would be worthless after the five years of operations. (Use any tool we have learned to answer this question).

a. If the market interest rate is 8%, should LAX Inc. accept the contract? Why?

b. What interest rate would make the firm indifferent to taking the contract?