Assume That to Fund the Investment Taggart Will Take on $150

question 7

Multiple Choice

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% (after-tax) 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:

Randomly Assigned

A process in experimental design where participants are allocated to different groups without any biases or predetermined patterns.

Knowledgeable

Possessing or showing a great deal of information, awareness, or understanding about specific subjects or topics.

Actor-Observer Effect

A cognitive bias in which people tend to attribute their own actions to situational factors, while attributing others' actions to their character or disposition.

Traffic

The movement of vehicles, ships, persons, or animals through an area, or the volume of this movement in a specified pathway or domain, such as internet traffic.