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TTC is planning to raise $3.25 million for three years at an interest rate of 7.35...

TTC is planning to raise $3.25 million for three years at an interest rate of 7.35 percent to finance their expansion. The Alban County Board of Commissioners has just offered the firm the $3.25 million they need at 5.25 percent if the firm builds in Alban County, pays the interest annually, and repays the principal at the end of three years. What is the net present value of the loan to TTC if the firm's tax rate is 21 percent and it accepts the county's offer?

A. $293,651

B. 212,100

C. $186,416

D $271,405

Solutions

Expert Solution

Solution :

The net present value of the loan to TTC if the firm's tax rate is 21 percent and it accepts the county's offer is = $ 271,405

The solution is Option D. $ 271,405

Note :

1. Interest After Tax = Loan amount * Interest rate offered by the county * ( 1 - Tax rate )

= $ 3,250,000 * 5.25 % * ( 1 - 0.21 )

= $ 3,250,000 * 5.25 % * 0.79

= $ 170,625

Please find the attached screenshot of the excel sheet containing the detailed calculation for the solution.

jeff jeffy answered 1 year ago
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