Question

3.) (CHAPTER 18) A firm is raising new equity in order to invest $4.0 million into...

3.) (CHAPTER 18) A firm is raising new equity in order to invest $4.0 million into a new business project that would last 10 years. Annual pre-tax earnings from it will equal $0.4 million, corporate tax is 35%, and the required return on equity is 10%. If instead it raised half of the initial expense through a 10-year interest-only loan at a 4% annual interest, what would be the net present value of the financing side effects?
   a.   $430,120
   b.   $227,105
   c.   $70,000
   d.   $28,000
   e.   $23,008


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