A Project Has a NPV,assuming All Equity Financing,of $1

question 51

Essay

A project has a NPV,assuming all equity financing,of $1.5 million. To finance the project,debt is issued with associated flotation costs of $60,000. The flotation costs can be amortized over the project's 5 year life. The debt of $10 million is issued at 10% interest,with principal repaid in a lump sum at the end of the fifth year. If the firm's tax rate is 34%,calculate the project's APV.