Problem 4:

If total return after tax on a certain project is 7%, and your tax rate is 28%. There are five

financing choices available to you:

(1) 7% interest rate and a 60% LTV ratio;

(2) 7.8% interest rate and a 70% LTV ratio;

(3) 8.5% interest rate and a 80% LTV ratio;

(4) 9.25% interest rate and a 90% LTV ratio;

(5) 9.75% interest rate and a 95% LTV ratio;

Questions:

(1) Calculate after-tax return on your equity for each financing choice.

(2) Which financing choice would you like to make?

(3) Do you have an alternative way to find the best financing choice?