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ERP Corp. is considering financing a project with only equity. The projects unlevered cost of capital (r A ) is 10%. The project will require
ERP Corp. is considering financing a project with only equity. The projects unlevered cost of capital (rA) is 10%. The project will require a $1500 initial investment today and pay incremental free-cash-flows of $150 in perpetuity starting the one year from now. If the firm were to finance the project with debt so that its target D/E ratio is 0.50, What is the value of the interest tax-shield? Assume the interest rate on the new debt will be 3%, and the firm faces a 21% tax rate. Round your answer to two decimals.
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