Zorba Corp. is planning to invest in a manufacturing plant with an initial cost of $105 million (which includes $5 million of initial net working capital). The useful life of the plant is 20 years. The project will be financed with $40 million debt and the rest equity.

Zorba has an unlevered cost of capital of 10%, a cost of debt of 5% and a tax rate of 25%. The 20-year Treasury bond rate is 4% (assume is riskless).

What is the present value of the recovery of the net working capital?

Select one:

a. $743,218.14

b. $0

c. $2,394,461.71

d. $2,281,934.73

e. $1,884,447.41

Agency costs of debt occur when lenders take advantage of the indenture (debt contract) at the expense of the shareholders.

Select one:

True

False

Puma Inc. is an unlevered firm with 20 million of shares outstanding and market value of $300 million. The cost of equity is 10% and the corporate tax rates is 40%. Based on this information what is the price of the stock?

Select one:

a. $15

b. $10

c. $90

d. $9