Highways-R-Us is going to build a toll road in Texas. The initial investment in paving equipment is $20 million. Straight-line depreciation will be used, and the construction equipment has an economic life of two years with no salvage value. Other construction costs are estimated to be $10.5 million per year. The project will be finished in two years. Net annual toll revenue collected from the usage of the road is projected to be $6 million for 20 years starting from the end of the first year of usage. Assume: - The corporate tax rate is 35%. - The required rate of return for the project under all-equity financing is 12%. - The prevailing market interest rate is 9% a year. - The state government, eager to encourage the project, offers to help finance the project by lending $10 million at a subsidized rate of 5% per year. - Other than the previous bond, the rest of the project is financed with equity.

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