You are the owner of a large data-services firm and are decidingon the purchase of a new hardware cooling system that you expectwill yield $233,300 in cost-savings per year for the next 15 years.The installation of this cooling system will cost $3,000,000.
3. Suppose that you decide to finance the purchase of thissystem through a loan from the bank. The bank is willing to loanthis money over an 8 year term at an interest rate of 4% peryear.
a. Using a 70/30 debt-to-equity ratio, what is the NPV of thisproject?
i. (hint) calculate the yearly payment using excel function“PMT”
b. How does the NPV of this project change if a larger portionis financed through equity (e.g. debt-to-equity ratio of 60/40)?Why?
