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Delta ltd board of management intends to invest $4,500,000 in a long term project. In the project financing sources, $2,500,000 will come from shareholders while
Delta ltd board of management intends to invest $4,500,000 in a long term project. In the project financing sources, $2,500,000 will come from shareholders while the remainder will come from external borrowings in terms of a debt financing. The projected annual cash flows are estimated at $870,000. The current tax rate is 25% while cost of borrowing is 7%. Return on equity is 15%.
What is the adjusted present value of the project? keep in mind interest rate tax shield.
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