Compuvac Company has just completed its first pass forecast using the projected

Question

Compuvac Company has just completed its first pass forecast using the projected balance sheet method. The firm has determined that it needs $4 million in new debt which can be sold at par with a 10% annual coupon. Additionally, the firm will sell 500,000 shares of new common equity at $18.10 per share. Next year's expected dividend is $0.48 per share. The firm expects that taxes will be $160,000 less under the second pass than they were under the first pass based on a 40% tax rate. Given this information, what is the incremental change in AFN for Compuvac going from the first pass to the second pass?
A. $240,000
B. $0
C. $480,000
D. $160,000
E. $640,000

Explanation / Answer

C. $480,000

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