Your firm is considering expanding its operations which represent the same risk as your current operations. It’s expected to return additional cash flows of $10,000,000 at the end of each of the first five years and $7,000,000 at the end of each of the subsequent five years and a salvage value of $20,000,000 at the end of its 10-year use. Your firm is financed with $80,000,000 in $1,000 par bonds paying semi-annual coupons for an annual coupon rate of 6%, due in 20 years. They currently sell @105. Additionally, your firm is financed with $20,000,000 in common equity currently selling for $10/share which shareholders expect to continue to receive $0.25/share per quarter for the foreseeable future. You may annualize the coupons and dividends for this capital budgeting problem and assume negligible changes in the current expectations of inflation and risk. Your firm pays 40% in taxes. Remember to diagram the cf/time line where applicable.

1) What is the most you would pay for this expansion? Would you pay more, less, or the same if immediately (a) share prices increase, (b) corporate income tax rates decrease, or (c) your bonds sell at par?