Today is January 1,2009.The state of Iowa has offered your firm a subsidized loan.It will be in the amount of $10,000,000 at an interest rate of 5 percent and have ANNUAL (amortizing)payments over 3 years.The first payment is due today and your taxes are due January 1 of each year on the previous year's income.The yield to maturity on your firm's existing debt is 8 percent. What is the €-denominated NPV of this project? I did not round my intermediate steps,if you did,select the answer closest to yours.

Question

Quizplus · Accepted Answer

The correct answer is A because the €-denominated NPV of this project is €5,563.23. This is calculated by taking the present value of the loan payments and subtracting the present value of the taxes. The present value of the loan payments is calculated using the formula:PV = PMT * [1 - (1 + r)^-n] / rwhere:PMT = the annual loan paymentr = the annual interest raten = the number of yearsThe present value of the taxes is calculated using the formula:PV = Tax * [1 - (1 + r)^-n] / rwhere:Tax = the annual tax paymentr = the annual interest raten = the number of yearsThe €-denominated NPV is then calculated by subtracting the present value of the taxes from the present value of the loan payments.

Today Is January 1,2009