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Shiraz Industries is considering borrowing $200 million to fund a new project

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Shiraz Industries is considering borrowing $200 million to fund a new project. The market is uncertain about the project’s risk so Shiraz will have to pay a 6% interest rate on this loan. The actual risk of the loan is low so that the appropriate loan rate given the risk of the project is 5%. The entire principal will be repaid after four years. The corporate tax rate is 20%. Determine the effect of the loan on the value of the project.