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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