Question
Suppose that XYZ Corp is considering financing a project with only equity. The projects unlevered cost of capital is 10%. The project will require a
Suppose that XYZ Corp is considering financing a project with only equity. The projects unlevered cost of capital is 10%. The project will require a $1000 initial investment today and pay incremental free-cash-flows of $100 in perpetuity starting the end of the next year. If the firm were to finance the project with debt so that its D/E ratio is 0.50 What is the value of the interest tax-shield created by the new debt? Assume the interest rate on the new debt will be 3%, and the firm faces a 21% tax rate. Round your answer to two decimals.
how will the NPV of the project change?
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