Assume that to fund the investment Taggart will take on $150 million in permanent debt with the remainder of the investment funded through issuance of new equity.Assuming Taggart will incur a 2% (after-tax)underwriting fee on the new debt issue and a 5% underwriting fee on the issuance of new equity,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

A)NPV = V^L - Investment = V^U + T_cD - Investment - issuance cost = 11ea7cce_3cb2_f678_928c_bb91746126a2_TB1626_11 + (35%)$150 million - $250 million - (2%)($150)- 5%($100)=194.5 (Note that equity issuance costs are not tax deductible. )

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