For the company in problem 18.10, what is the value of being able to issue subsidized debt instead of having to issue debt at the terms it would normally receive? Assume the face amount and maturity of the debt issue are the same.

In Problem 18.10

Triad Corp. has established a joint venture with Imperial Road Construction Inc. to build a toll road in southwestern Ontario. The initial investment in paving equipment is $80 million. The equipment will be fully depreciated using the straight-line method over its economic life of five years. Earnings before interest, taxes, and depreciation collected from the toll road are projected to be $12.1 million per annum for 20 years starting from the end of the first year. The corporate tax rate is 35 percent. The required rate of return for the project under all-equity financing is 13 percent. The pre-tax cost of debt for the joint partnership is 8.5 percent. To encourage investment in the country’s infrastructure, the Canadian government will subsidize the project with a $25 million, 15-year loan at an interest rate of 5 percent per year. All principal will be repaid in one balloon payment at the end of year 15. What is the APV of this project?