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Zoom Inc. is thinking about investing money into a 8-year project that would greatly enhance its video and sound quality. It expects $255,000 in incremental
Zoom Inc. is thinking about investing money into a 8-year project that would greatly enhance its video and sound quality. It expects $255,000 in incremental after-tax profits every year. It pays a 30% tax rate on all of its taxable income. If accepted, this project would require a $1,200,000 upfront expense to pay for the necessary equipment. This equipment will be considered worthless at the end of the project due to its specialized nature. - With no loan used at the start of the project, the project would require a 14% annual return. This project's NPV is $17,089.71. - If, however, a loan is used in the amount of $720,000 at the start of the project, the company would choose an interest-only loan at 2.50% annual interest rate. If the loan is used, interest payments on the loan will be tax-deductible, and that will allow Zoom Inc. to realize in tax savings each year. In this case, for this project, the net present value of the financing side effects will equal .According to the adjusted net present value, such project should be HINT: You will not need to use some of the numbers that are given in this problem. True or false? In general, the higher the loan amount, the more the unlevered net present value of a project exceeds its adjusted net present value. This is
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