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(2 marks) The manager of Antarts is considering investing in a new project based on the following information.

Antarts Market Value Balance Sheet ($ Millions) and Cost of Capital

Assets			Liabilities			Cost of Capital
Cash	0		Debt	400		Debt	4.3%
Other Assets	1000		Equity	600		Equity	7.8%
						Tax rate (c)	27%

Antarts New Project Free Cash Flows (Millions)

Year	0	1	2	3	4
Free Cash Flows	($120)	$60	$80	$70	$50

The manager assumes that this new project is of average risk for Antarts and that the firm wants to hold constant its debt to equity ratio.

The net borrowing for Antarts new project at year 2 is closest to:

a.

$-27.43 million

b.

$-30.08 million

c.

$-27.73 million

d.

$-22.66 million