Business, 08.03.2021 19:40, cddominguez63
Highways-R-Us is going to build a toll road in Texas. The initial investment in paving equipment is $20 million. Straight-line depreciation will be used, and the construction equipment has an economic life of two years with no salvage value. Other construction costs are estimated to be $10.5 million per year. The project will be finished in two years. Net annual toll revenue collected from the usage of the road is projected to be $6 million for 20 years starting from the end of the first year of usage. Assume:
a. The corporate tax rate is 35%.
b. The required rate of return for the project under all-equity financing is 12%.
c. The prevailing market interest rate is 9% a year.
d. The state government, eager to encourage the project, offers to help finance the project by lending $10 million at a subsidized rate of 5% per year.
Required:
Find the value of this project using the APV.
Answers: 3
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Highways-R-Us is going to build a toll road in Texas. The initial investment in paving equipment is...
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