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Bells & Whistles, Inc is trying to evaluate an 8-year investment project. The project requires an initial investment of $1,200,000 which covers the cost of the production equipment. This equipment is specialized and so it will be considered worthless at the end of the project life. Every year, the company is expecting $250,000 in after-tax profits. Bells & Whistles, Inc is in 30% tax bracket for all purposes. If no loan is used, Bells & Whistles, Inc would require a 14% rate of return on this project. The net present value of this invesment project is -$40,284.03. However, Bells & Whistles, Inc is planning to take a loan in the amount of $720,000 that will partially cover the cost of the initial investment. It will be an interest-only loan with the annual interest rate of 2.50%. Increase the decimal places for all intermediate calculations. HINT: You will not need to use some of the numbers that are given in this problem. If the loan is used, it will allow Bells & Whistles, Inc to generate annual savings (from the interest payments on the loan being tax-deductible) of... . From the table below, pick a numer that corresponds to your chosen answer. 1 $5,400 2 $5,586 3 $6,048 4 $14,700 5 $18,000 6 $21,600 If the loan is used, the net present value of the financing side effects will equal... v. From the table below, pick a numer that corresponds to your chosen answer. v. From the table below, pick a numer that corresponds to If the loan is used, the net present value of the financing side effects will equal... your chosen answer. 1 $48,901.64 2 $44,522.23 3 $38,718.74 4 $36,300.43 5 $34,155.84 $31,145.84 If the loan is used, judging from the adjusted net present value, this project should be... corresponds to your chosen answer. 6 V. From the table below, pick a numer that 1 ... accepted 2 ...rejected In general, the higher the loan amount, the more the unlevered net present value of a project exceeds its adjusted net present value. This statement is... v. From the table below, pick a numer that corresponds to your chosen answer. 1 ...true ...false 2

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