Calculate the gain or loss from subsidized debt

Assignment Help Financial Management

Reference no: EM13938073

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 $80.1 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 $12.2 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 12 percent. The pretax cost of debt for the joint partnership is 8.6 percent. To encourage investment in the country’s infrastructure, the U.S. government will subsidize the project with a $25.1 million, 15-year loan at an interest rate of 5.1 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.

Reference no: EM13938073

Questions Cloud

What is the net present value of the asset : A company is considering purchasing an asset for $60,000 that would have a useful life of 5 years and would have a salvage value of $7,000. For tax purposes, the entire original cost of the asset would be depreciated over 5 years using the straight-l..

Find the effective rate charged by the bank : Bill Blank signed an $8,150 note at Citizen’s Bank. Citizen’s charges a 6.4 % discount rate. Assume the loan is for 310 days. Find the proceeds. Find the effective rate charged by the bank.

Calculate how much markway is able to borrow : Calculate how much Markway is able to borrow if each bond is sold at a discount of $30. Calculate how much Markway is able to borrow if each bond is sold at 96 percent of par.

Why have so many plants developed broad, flattened leaves : Why have so many plants developed broad, flattened leaves? What is heliotropism, and how does it make plants more efficient? What are sleep movements? Describe the model for leaf orientation in the upper, middle, and lower levels of a leaf canopy...

Calculate the gain or loss from subsidized debt : 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 $80.1 million. The equipment will be fully depreciated using the straight-li..

Write the definition of the readandcount function. : Write the definition of the readAndCount function. The function should read the input line, character by character, counting the number of words (a sequence of letters) and the number of occurrences of each letter.

The company is in the process of planning profit : The company is in the process of planning profit for the coming year.

The yield to maturity on a bond : The yield to maturity on a bond:

How do organisms acquire energy : What is the purpose of this pathway? What are the reactants? What are the products?

User Account

All Pages