You are opening an amusement park. Building the park will cost $15M dollars, and the park will
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Question:
You are opening an amusement park. Building the park will cost $15M dollars, and the park will produce EBIT of $3M per year for the foreseeable future. Your tax rate is 28%, your cost of unlevered equity is 11%, and your cost of debt is 6%. In order to boost teen employment, the State of Nebraska is offering you an $8M perpetual loan with an interest rate of 5%, but applying for this loan will incur administrative costs of $500,000.
Part A (5 points). What is the NPV of this amusement park if you do not accept the loan?
Part B (10 points). What is the NPV of the loan you are being offered?
Part C (5 points). What is the NPV of this project using the APV method?
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