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

question 38

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 marginal corporate tax rate is 35%.
-Assume that to fund the investment Taggart will take on $150 million in permanent debt with the remainder of the investment funded through issuance of new equity.Assume Taggart will incur a 2% underwriting fee on the new debt issue and a 5% underwriting fee on the issuance of new equity.If management believes Taggart's current share price of $25 is $3 less than its true value,then the NPV of Taggart's new rail line is closest to:

• A) $185 million
• B) $195 million
• C) $200 million
• D) $235 million

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Definitions:

Signaling Device

An object or action that is used to convey information or instructions to others, often without the use of words or direct communication.

Fire Prevention Program

A set of measures designed to minimize the occurrence and impact of fire by maintaining a safe environment and educating about fire safety practices.

Expected Loss

The calculated sum of all possible losses, each weighted by the probability of its occurrence, a crucial concept in risk management and financial planning.

No Insurance

pertains to the absence of any insurance coverage for individuals or entities, leaving them exposed to risk.