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johnpaech johnpaech
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6 years ago
Luther Industries is considering borrowing $500 million to fund a new product line.  Given investors' uncertainty regarding its prospects, Luther will pay a 7% interest rate on this loan.  The firm's management knows, that the actual risk of the loan is extremely low and that the appropriate rate on the loan is 5%.  Suppose the loan is for four years, with all principal being repaid in the fourth year.  If Luther's marginal corporate tax rate is 35%, then the net effect of the loan on the value of the new product line is closest to:
A) $22 million
B) $34 million
C) $35 million
D) $24 million
Textbook 
Corporate Finance: The Core

Corporate Finance: The Core


Edition: 4th
Authors:
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pbrown223pbrown223
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6 years ago
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johnpaech Author
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#2
6 years ago
Thanks for helping with my corporate finance course
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