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

question 86

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.Assuming Taggart will incur a 2% underwriting fee on the new debt issue and a 5% underwriting fee on the issuance of new equity,the NPV of Taggart's new rail line is closest to:

• A) $195 million
• B) $200 million
• C) $235 million
• D) $240 million

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Definitions:

Monthly Withdrawals

Regular amounts taken out from an account or investment every month.

Initial Investment

The amount of money used to start a venture or project.

Tax-deferred

Pertaining to investments, savings, or accounts that allow earnings to accrue without being subject to immediate tax until a later date.

Annuity

An annuity is a financial product that pays out a fixed stream of payments to an individual, typically used as part of a retirement strategy.