Use the Following Information to Answer the Question(s)below

question 25

Multiple Choice

Use the following information to answer the question(s) below.
Taggart Transcontinental is considering a $250 million investment to launch a new rail line.The project is expected to generate a free cash flow of $32 million per year,and its unlevered cost of capital is 8%.Taggart's corporate tax rate is 21%.Taggert has 4 million shares of stock outstanding.
-Assuming that to fund the investment Taggart will take on $250 million in permanent debt and assuming Taggart will incur a 2% (after-tax) underwriting fee on the new debt issue,the NPV of Taggart's new rail line is closest to:

• A)$198 million.
• B)$210 million.
• C)$235 million.
• D)$240 million.

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Definitions:

Perfect Complementarity

Refers to a situation in consumer choice theory where two goods are always consumed together in fixed proportions because one is perfectly complementary to the other.

Engel Curve

A graph showing the relationship between the income of a consumer and the amount of a good that the consumer buys, illustrating how spending on a good varies with income.

Left and Right Shoes

Items that are perfect complements in consumption, where the use of one without the other is generally considered incomplete or unsatisfactory.

Price of X

The price of X refers to the cost to buyers of acquiring a unit of good or service X in the market.