Polar Electricity is evaluating whether to build a new factory. The proposed investment will cost Polar $1 million to construct and provide cash savings of $200,000 per

year over the next 10 years.

(a) Wha rate of return does the investment offer?

(b) What is the maximum risk-free rate under which Polar is willing to make this

investment? Justify your answer.

(c) If Polar were to invest another $500,000 in the facility at the end of 5 years,

it would extend the life of the project for 4 years, during which time it would

continue receiving cash savings of $150,000. What is the internal rate of return

for this additional investment?