Triad Corporation has established a joint venture with Tobacco Road Construction, Inc., to build a toll...

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Triad Corporation has established a joint venture with TobaccoRoad Construction, Inc., to build a toll road in North Carolina.The initial investment in paving equipment is $197 million. Theequipment will be fully depreciated using the straight-line methodover its economic life of five years. Earnings before interest,taxes, and depreciation collected from the toll road are projectedto be $29.3 million per annum for 20 years starting from the end ofthe first year. The corporate tax rate is 23 percent. The requiredrate of return for the project under all-equity financing is 15percent. The pretax cost of debt for the joint partnership is 8.7percent. To encourage investment in the country’s infrastructure,the U.S. government will subsidize the project with a $130 million,15-year loan at an interest rate of 5.2 percent per year. Allprincipal will be repaid in one balloon payment at the end of Year15.

What is the adjusted present value of this project?

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Answer Adjusted Present value of the Project would be APV NPV Sd Sl VI NPV Net present value of the Cash flows that we will receive over 20 years Sd Present value of Depreciation Tax shield Sl Present value of See Answer

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Triad Corporation has established a joint venture with TobaccoRoad Construction, Inc., to build a toll road in North Carolina.The initial investment in paving equipment is $197 million. Theequipment will be fully depreciated using the straight-line methodover its economic life of five years. Earnings before interest,taxes, and depreciation collected from the toll road are projectedto be $29.3 million per annum for 20 years starting from the end ofthe first year. The corporate tax rate is 23 percent. The requiredrate of return for the project under all-equity financing is 15percent. The pretax cost of debt for the joint partnership is 8.7percent. To encourage investment in the country’s infrastructure,the U.S. government will subsidize the project with a $130 million,15-year loan at an interest rate of 5.2 percent per year. Allprincipal will be repaid in one balloon payment at the end of Year15. What is the adjusted present value of this project?