A Project Has a NPV, Assuming All Equity Financing, of $1.5

question 24

Essay

A project has a NPV, assuming all equity financing, of $1.5 million. To finance the project, debt is issued with associated floatation costs of $60,000. The floatation 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.

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Definitions:

MBCA

Model Business Corporation Act, a template for state corporation statutes that provides legal guidelines for corporate governance and operations.

Articles of Incorporation

Legal documents filed with the state government to legally establish a corporation.

Proper Consideration

The requirement in contract law that something of value must be exchanged between the parties to form a valid contract.

Incorporeal Property

Refers to intangible assets owned by an individual or corporation, such as intellectual property, securities, and rights to financial accounts.