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2. World Celifone Co. is considering the purchase of a new telecommunications system earnings will million. This system will boost the firm's productivity so that
2. World Celifone Co. is considering the purchase of a new telecommunications system earnings will million. This system will boost the firm's productivity so that its operating increase by S12 mill rate is 35% and its debt and equity costs are 7% and 14%, respectively. The manufacturer of the telecommunications system is willing to loan the firm $25 million for the purchase at a subsidized rate of 5% (with world Cellfone Co. puttin earnings account). The loan principal is to be paid off in 5 equal installments over 5 years ion per year over the next 8 years, World Celilfone Co. corporate tax g up the remainder from its retained with interest being paid every year on the loan outstanding. If the firm's r return under all-equity financing is 10%, should it go ahead with the purchase? equired
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