[steven0914]

Bank loan with attached warrants

BBS can borrow a four-year loan for the full amount of $20 million from
New Territory Bank. The interest rate for this loan is 9% p.a. and
the firm is required to pay $6,100,000 end-of-year payments over
the next four years. In addition to the annual payment, the facility
letter stated that BBS needs to issue 1,000,000 units of warrants
to New Territory Bank. Each warrant allows the Bank to
purchase one share of BBS’s stock, at a price of $13 per share, at
any time during the next four years. The stock price of BBS is
currently selling for $11 per share and the market value of one
BBS warrant is worth $0.24 estimated by the Bank. The
combined market value of the debt and the attached warrants is
equal to the $20 million initial loan principal. Without issuing the
warrants, New Territory Bank will charge 9.0% annual interest
for the loan.
In addition, the feasibility study revealed that the DNC machine has
an expected life of four years with $2 million in residual value. After
acquiring the DNC machine, BBS will need to spend $200,000 at the
end of each year for service and maintenance. The estimated
depreciation of the machine is allocated as $3,000,000 in the first
year, $4,000,000 in the second year, $5,000,000 in the third year and
$6,000,000 in the fourth year. The company, however, intends to
keep the machine and operate it beyond its four years of useful life.
BBS is in the 25% tax bracket and its after-tax cost of debt is 6.75%
under the debt-with-warrants alternative.

Question:
I the annual interest expense deductible for tax purposes for each
of the next four years .(spreadsheet format)
End of Year Loan Payment Beginning Balance Interest Portion(8.4573% p.a.)
Principal Portion Ending Balance

ii the after-tax cash outflow for each of the next four years
Year Loan Payment Maintenance Expenses Depreciation Interest Portion
Total Deduction Tax Shields After-tax Cash Outflow