You have the opportunity to invest in a project with an initial costs of $100,000 which...

 

Transcribed Image Text:

You have the opportunity to invest in a project with an initial costs of $100,000 which has an estimated IRR of 13.8%. While you require a 16% rate of return on your personal capital, you can arrange debt financing at a pre-tax rate of 6%. Since the project would be organized as a corporation, it would pay a 20% tax rate on the profits it generates but interest on any debt would also be tax deductible. What is the minimum amount of debt ($$) that you need to borrow to get NPV to zero? You have the opportunity to invest in a project with an initial costs of $100,000 which has an estimated IRR of 13.8%. While you require a 16% rate of return on your personal capital, you can arrange debt financing at a pre-tax rate of 6%. Since the project would be organized as a corporation, it would pay a 20% tax rate on the profits it generates but interest on any debt would also be tax deductible. What is the minimum amount of debt ($$) that you need to borrow to get NPV to zero?

Answer rating: 100% (QA)

Heres how to find the minimum amount of debt needed for a zero NPV 1 Calculate the projects unlevera... View the full answer