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

Next > < Previous

Related Solutions

The interest rate for the first five years of a $27,000 mortgage loan was 3.25% compounded...

The interest rate for the first five years of a $27,000 mortgage loan was 3.25% compounded semiannually. The monthly payments computed for a 10-year amortization were rounded to the next higher $10. (Do not round intermediate calculations and round your final answers to 2 decimal places.) a. Calculate the principal balance at the end of the first term. Principal balance $ b. Upon renewal at 5.75% compounded semiannually, monthly payments were calculated for a five-year amortization and again rounded...

4 You are planning to invest $2,500 today for three years at a nominal interest rate...

4 You are planning to invest $2,500 today for three years at a nominal interest rate of 9 percent with annual compounding. What would be the future value of your investment? Now assume that inflation is expected to be 3 percent per year over the same three-year period. What would be the investment's future value in terms of purchasing power? What would be the investment's future value in terms of purchasing power if inflation occurs at a 9 percent annual...

If the nominal interest rate is 3.25% and expected inflation is 2%, what is the real...

If the nominal interest rate is 3.25% and expected inflation is 2%, what is the real interest rate? Calculate it using the Fisher Effect and the shortened equation.

a) Given effective quarterly interest rate equal to 3.25%, findthe equivalent monthly interest rate.Ans:...

a) Given effective quarterly interest rate equal to 3.25%, find the equivalent monthly interest rate.Ans: 1.078%. Show all work.b)Given effective annual discount rate equal to 9.2%, find the nominal interest rate compounded quarterly.

Consider a 30-year fixed-rate home loan of $545,500 with an interest rate of 3.25%. What is...

Consider a 30-year fixed-rate home loan of $545,500 with an interest rate of 3.25%. What is the total amount of interest paid? (Round your answer to the nearest cent.)?

A public company is planning to raise 3.2 million dollars by using financial instruments for a...

A public company is planning to raise 3.2 million dollars by using financial instruments for a seven-month project. Assume you work as a financial advisor, which instrument you would suggest the company to issue or purchase? Is the instrument you suggest a money market instrument or capital market instrument? Explain the reason(s). Discuss at least two reasons (differences) why the instrument you suggested in part (a) may trade at a different yield to a 10-year treasury bond.

An individual invests $2,000 for three years and earns interest at a rate of 2.125%. If...

An individual invests $2,000 for three years and earns interest at a rate of 2.125%. If interest is compounded quarterly, how much will the individual have after three years? A. $2,127.50 B. $2,131.29 C. $2,130.94

An interest rate swap has three years of remaining life. Payments are exchanged annually. Interest at...

An interest rate swap has three years of remaining life. Payments are exchanged annually. Interest at 2.25% fixed is paid and 12-month LIBOR is received. An exchange of payments has just taken place. The one-year, two-year and three-year LIBOR Forward rates are 2.25%, 2.40% and 2.6%. The one-year, two-year and three-year OIS rates are 3.25%, 3.00%, and 3.25%. All rates are compounded continuously. What is the value of the swap if the principal is $250 million?

1.a. A public company is planning to raise 3.2 million dollars by using financial instruments for...

1.a. A public company is planning to raise 3.2 million dollars by using financial instruments for a seven-month project. Assume you work as a financial advisor, which instrument you would suggest the company to issue or purchase? Is the instrument you suggest a money market instrument or capital market instrument? Explain the reason(s). b. Discuss at least two reasons (differences) why the instrument you suggested in part (a) may trade at a different yield to a 10-year treasury bond 2.What...

The interest rate for the first three years of an $86,000 mortgage is 7.4% compounded semiannually....

The interest rate for the first three years of an $86,000 mortgage is 7.4% compounded semiannually. Monthly payments are based on a 20-year amortization. Suppose a $4500 prepayment is made at the end of the sixteenth month. a. How much will the amortization period be shortened? The amortization period will be shortened by months. b. What will be the principal balance at the end of the three-year term? (Round your answer to the nearest cent.)

Subjects