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Gemini Inc., an all - equity firm, is considering a $ 1 . 7 1 million investment that will be depreciated according to the straight
Gemini Inc., an allequity firm, is considering a $ million investment that will be depreciated according to the straightline method over its fouryear life. The project is expected to generate $ per year in earnings before taxes and depreciation for four years. The investment will not change the risk level of the firm. The company can obtain a fouryear, percent loan to finance the project from a local bank. All principal will be repaid in one balloon payment at the end of the fourth year. The bank will charge the firm $ in flotation fees, which will be amortized over the fouryear life of the loan. If the company financed the project entirely with equity, the firms cost of capital would be percent. The corporate tax rate is percent.
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