Assume that to fund the investment Taggart will take on $150 million in permanent debt with the remainder of the investment funded by a cut in dividends.Assuming Taggart will incur a 2% (after-tax)underwriting fee on the new debt issue,the NPV of Taggart's new rail line is closest to:
A)$195 million
B)$200 million
C)$235 million
D)$240 million

Question

Quizplus · Accepted Answer

B)NPV = V^L - Investment = V^U + T_cD - Investment - issuance cost = 11ea7cce_3cb2_cf67_928c_f76c5b95af8f_TB1626_11 + (35%)$150 million - $250 million - (2%)($150)=199.5

Assume That to Fund the Investment Taggart Will Take on $150