Tamanna Trading Inc., has produced aviation supplies for over 20 years. The company currently has a debt-equity ratio of 50 percent and a tax rate of 21 percent. The firms required return on levered equity is 15 percent. The firm is planning to expand its production capacity. The equipment to be purchased is expected to generate the following unlevered cash flows:

Company has arranged a debt issue of $9.3M to finance expansion. 2. Company will pay interest of 9% at the end of each year on the outstanding balance at the beginning of the year. 3. Company plans to make year-end principal payments of $3.1 million per year to retire the issuance by the end of the third year

Year Cash Flow 0 ($14,700,000) 1 $5,400,000 2 $8,900,000 3 $8,600,000