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Amezone Company is planning to build a new Head Office, financing it in part by selling $10 million of 10-year debt at 6% annual yield.

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Amezone Company is planning to build a new Head Office, financing it in part by selling $10 million of 10-year debt at 6% annual yield. They have just received an offer from Queens County to pay the debt flotation costs and certify the debt as a municipal (conduit) bond if they build the factory in Queens. Amezone would remain responsible for paying interest and principal, but the municipal bond status would allow them to borrow at 4.5% instead of 6%. The corporate tax rate is 34%. The first interest payment would be due one period hence. (a) How much would the debt financing (not just the subsidy but also the tax-deductible interest payments) add to the NPV of Amezone's expansion project if they accept Queen's offer? Amezone Company is planning to build a new Head Office, financing it in part by selling $10 million of 10-year debt at 6% annual yield. They have just received an offer from Queens County to pay the debt flotation costs and certify the debt as a municipal (conduit) bond if they build the factory in Queens. Amezone would remain responsible for paying interest and principal, but the municipal bond status would allow them to borrow at 4.5% instead of 6%. The corporate tax rate is 34%. The first interest payment would be due one period hence. (a) How much would the debt financing (not just the subsidy but also the tax-deductible interest payments) add to the NPV of Amezone's expansion project if they accept Queen's offer

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