FINANCE 540 – Suppose that UK Motors Ltd. is considering an investment

Subject: Business    / Finance
Question
Suppose that UK Motors Ltd. is considering an investment of £30 million to develop a new factory. Assume that the company’s stockholders require a 22% rate of return, that the company’s bondholders require a 9% rate of return, that the UK corporate tax rate is 40%, that 35% of the project will be financed by debt, and that 65% of the project will be financed with equity. What must be the annual income from the project if it is to be a zero net present value investment?