Q1. Investment bankers for Firm A suggest that they issue more debt to increase the value of the company. Specifically, the investment banker recommends issuing 10,000 bonds each with 6% annual coupon, $1000 face value, and 11 years to maturity. The bankers believe the market will price the bonds at a YTM of 6%. If Firm A's tax rate is 25%, what is the expected yearly interest tax shield from this additional debt?

Q2. The local gas station is privately owned. Currently, the business is all equity financed. The riskiness of cash flows in this industry, R_U, is 13%. Since the business has lots of cash flow, the owners think that can reduce their tax bill and increase the value of the overall business by issuing some debt.

Suppose they will borrow $600,000 today and plan to pay off $200,000 of debt each year. If their tax rate is 29%, the interest rate and cost of borrowing are both 7%, what is the overall increase in total firm value?

Q3. Coog's Food Truck is considering opening a brick-and-mortar fast-food restaurant location. The owners want to calculate the NPV for the first 5 years. First, the cost of building the restaurant will be $2.5 million due today. Second, the yearly FCF will be $1.2 million.

Since this is a private company, you do know their cost of equity. You know that McDonald's, a leader in the same industry, has a cost of equity of 13%, a cost of debt of 7%, and a D/E ratio of 1. McDonald's is a stable firm and plans to maintain a constant D/E ratio.

Finally, you know that Coog's Food Truck's owners want to issue debt to help finance the project. Specifically, they will borrow $2 million from the bank. They will keep this loan for the first 5 years. Their cost of borrowing and interest rate will be 5%. The firm's tax rate is 25%.

Given the information above, what is the NPV of this new brick-and-mortar establishment?