Ports, Ltd. is algorithm for ports management to be sold to shipping companies. They spent 25,000 researching and collecting intelligence before deciding to go ahead with this project. The partnerships business model is characterized by starting up the project and, after 6 years, selling it to other investors or through an initial public offering (IPO). The expected market value would be 2,050,502, considering it is fully financed by equity. The two college friends have not decided yet on how to finance it. They are considering the pros and cons of the financing mix for the company.

Scenario 2 is to finance the project through bank borrowing. They expect to maintain an outstanding balance on the loan at 1 million euros. In this case, CaliforniaPorts only needs to have the initial equity of 10.000 (but still 1 million shares, i.e., a book value per share equal to 0,01).

Questions about Scenario 2 c) What is CaliforniaPorts present value of interest tax shield? d) Assume the personal taxes are 28% on interest and 28% on equity return. What is the tax advantage in the presence of personal taxes? Explain. e) What is CaliforniaPorts value if the risk of default is absent from your analysis? f) What is CaliforniaPorts present value of financial distress costs? g) What is CaliforniaPorts value, including the risk of default?