What effect will subsidized loans have?
Multiple Choice
They will increase the APV of a project.
They will decrease the APV of a project.
They will not affect APV.
None of the options.
Subsidized loans will have a lower interest rate than the market rate. Tax savings and loan payments are discounted at the normal risk-free rate, this will cause increase in APV.
Hence, correct option is “They will increase the APV of a project.”
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