Zoom Inc. is thinking about investing money into a 8-year project that would greatly enhance its video and sound quality. It expects $255,000 in incremental after-tax profits every year. It pays a 30% tax rate on all of its taxable income. If accepted, this project would require a $1,200,000 upfront expense to pay for the necessary equipment. This equipment will be considered worthless at the end of the project due to its specialized nature. With no loan used at the start of the project, the project would require a 14% annual return. This project's NPV is -$17,089.71. If, however, a loan is used in the amount of $720,000 at the start of the project, the company would choose an interest - only loan at 2.50% annual interest rate. If the loan is used, interest payments on the loan will be tax - deductible, and that will allow Zoom Inc. to realize [ Select ] in tax savings each year. In this case, for this project, the net present value of the financing side effects will equal [ Select]. According to the adjusted net present value, such project should be
Zoom Inc. is thinking about investing money into a 8-year project that would greatly enhance its video and sound quality. It expects $255,000 in incremental after-tax profits every year. It pays a 30% tax rate on all of its taxable income. If accepted, this project would require a $1,200,000 upfront expense to pay for the necessary equipment. This equipment will be considered worthless at the end of the project due to its specialized nature. With no loan used at the start of the project, the project would require a 14% annual return. This project's NPV is -$17,089.71. If, however, a loan is used in the amount of $720,000 at the start of the project, the company would choose an interest - only loan at 2.50% annual interest rate. If the loan is used, interest payments on the loan will be tax - deductible, and that will allow Zoom Inc. to realize [ Select ] in tax savings each year. In this case, for this project, the net present value of the financing side effects will equal [ Select]. According to the adjusted net present value, such project should be
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Vijay shiyal
![Zoom Inc. is thinking about investing money into a 8-year project that would greatly enhance its video and sound
quality. It expects $255,000 in incremental after - tax profits every year. It pays a 30% tax rate on all of its taxable income.
If accepted, this project would require a $1,200,000 upfront expense to pay for the necessary equipment. This
equipment will be considered worthless at the end of the project due to its specialized nature. With no loan used at the
start of the project, the project would require a 14% annual return. This project's NPV is -$17,089.71. If, however, a loan
is used in the amount of $720,000 at the start of the project, the company would choose an interest - only loan at 2.50%
annual interest rate. If the loan is used, interest payments on the loan will be tax - deductible, and that will allow Zoom
Inc. to realize [Select ] in tax savings each year. In this case, for this project, the net present value of the financing side
effects will equal [ Select]. According to the adjusted net present value, such project should be](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F4c257440-fdf1-40aa-9cd5-877fdfbf7531%2F7a54a1be-fa4c-45a4-8b31-7ef6adbec1fd%2F65htsww_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Zoom Inc. is thinking about investing money into a 8-year project that would greatly enhance its video and sound
quality. It expects $255,000 in incremental after - tax profits every year. It pays a 30% tax rate on all of its taxable income.
If accepted, this project would require a $1,200,000 upfront expense to pay for the necessary equipment. This
equipment will be considered worthless at the end of the project due to its specialized nature. With no loan used at the
start of the project, the project would require a 14% annual return. This project's NPV is -$17,089.71. If, however, a loan
is used in the amount of $720,000 at the start of the project, the company would choose an interest - only loan at 2.50%
annual interest rate. If the loan is used, interest payments on the loan will be tax - deductible, and that will allow Zoom
Inc. to realize [Select ] in tax savings each year. In this case, for this project, the net present value of the financing side
effects will equal [ Select]. According to the adjusted net present value, such project should be
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