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Triad Corporation has established a joint venture with Tobacco Road Construction, Inc., to build a toll road in North Carolina. The initial investment in paving equipment is $81.6 million. The equipment will be fully depreciated using the straight-line method over its economic life of five years. Earnings before interest, taxes, and depreciation collected from the toll road are projected to be $13.7 million per annum for 20 years starting from the end of the first year. The corporate tax rate is 40 percent. The required rate of return for the project under all-equity financing is 14 percent. The pretax cost of debt for the joint partnership is 10.1 percent. To encourage investment in the country’s infrastructure, the U.S. government will subsidize the project with a $26.6 million, 15-year loan at an interest rate of 6.6 percent per year. All principal will be repaid in one balloon payment at the end of Year 15. The company issued subsidized debt instead of issuing debt at the terms it normally would. Assume the face amount and maturity of the debt issue are the same.
Calculate the gain or loss from subsidized debt. (Enter your answer in dollars, not millions of dollars, e.g., 1,234,567. Input the amount as a positive value. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Weir Inc. has a target capital structure of 30% debt, 20% preferred, and 50% common equity. The interest rate on new debt is 6.50%, the yield on the preferred is 6.00%, the cost of retained earnings is 8.8%, and the tax rate is 40%. The WACC for Weir..
Calculate the formula value of the right for both the rights-on and the ex-rights cases.- How much is the market price of the company's stock expected to drop on the exrights date, all other things being equal? Why?
Castro’s cost of capital is 0.16. It plans to use cash to make the acquisition. Determine the NPV under these conditions.
Calculate for a loan of $1,000,000 at 5% with monthly payments and a 30 yearterm, the effective yield to the lender assuming 6 points were paid under the following scenarios:
The spot and 30 day forward rates for the Dutch guilder are $.3075 and $.3120, respectively. The guilder is said to be selling at a forward. A ________ involves simultaneously borrowing and lending activities in two different currencies to lock in th..
Discuss how these measures are interpreted by analysts, investors and other users of the CBs reported financial statements?
"Pink sheets" are traded on the
Investors face a tax rate of 33 percent on interest received from corporate bonds. If municipal bonds currently offer yields of 6 percent, what yield would equally risky corporate bonds need to offer to be competitive?
if the Alfa will pay you and your heirs at the end of each year forever, will is the future value of the policy?
A company currently pays a dividend of $2.75 per share (D0 = $2.75). It is estimated that the company's dividend will grow at a rate of 17% per year for the next 2 years, and then at a constant rate of 6% thereafter. The company's stock has a beta of..
Commonwealth health plan-Commonwealth is a large managed care organization (MCO).
Upper Crust Bakers just paid an annual dividend of $2.80 a share on its common stock and is expected to increase that dividend by 4 percent per year for the foreseeable future. If the discount rate on Upper Crust is 11.50 percent, what is the current..
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