Question
T-Mobile is considering installing a new 5G mobile network. The discount rate of their assets is 20%. T-Mobile expects to increase its free cash flows
T-Mobile is considering installing a new 5G mobile network. The discount rate of their assets is 20%. T-Mobile expects to increase its free cash flows by $200 a year for the next three years before a new technology takes over. This investment in 5G will cost $425 million and will be partially finance by debt. The debt has a face value of $250 million, an interest rate of 8%, and will be paid off at the end of the project (at the end of year 3). Further, assume T-Mobiles tax rate is 20%.
What is the NPV of the investment if T-Mobile takes on no debt?
a. -3.7M
b. -2.1M
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