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Calculate the npv of total cash outflow on after-tax basis

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Reference no: EM131300034

A company could sell $125 million in bonds to finance an aquisition. The annual interest rate would be 6.5% and they would mature in 15 years. Annual principal repayments of $6.25 million would be required, leaving $37.5 million outstanding at maturity.

At the company's current marginal tax rate of 35%, the 6.5% rate would be the equivalent of 4.225% on an after-tax basis, due to the tax shield allowed on interest payments.

1. Calculate the NPV of the total cash outflow( including interest payments) on a after-tax basis.

2. Calculate the NPV of total cash outflow (including interest payments) on a after-tax basis. Assume no anual principal payments, instead, a principal payment of $125 million at mautrity.

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Reference no: EM131300034

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