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A company has established a joint venture with another company to build a toll road. The initial investment is paving equipment is 3 4 million.
A company has established a joint venture with another company to build a toll road.
The initial investment is paving equipment is million. the equipment will be fully
depreciated using the straightline method over its economic life of five years.
Earnings before interest, taxes and depreciation collected from the toll road are
projected to be million per annum for years starting from the end of the first
year. The corporate tax rate is The required rate of return for the project under
allequity financing is The pretax cost of debt for the joint partnership is To
encourage investment in the country's infrastructure, the government will subsidize
the project with an million, year loan at an interest rate of per year. All
principal will be repaid in one balloon payment at the end of year The NPV of the
project rounded to a whole number is:
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