International Financial Management 2nd Edition by Geert Bekaert ,Robert Hodrick

Exercise 17

Suppose that U.K. Motors Ltd. is considering an investment of £30 million to develop a new factory. Assume that its stockholders require a 22% rate of return, that its bondholders require a 9% rate of return, that the U.K. corporate tax rate is 40%, that 35% of the project will be financed by debt, and that 65% of the project will be financed with equity. What must be the annual income from the project if it is to be a zero net present value investment